Answer to Question #249235 in Macroeconomics for Biba

Question

6. Reconstruct Table 22-2 assuming that planned investment is equal to ( a) $300 billion and ( b) $400 billion.
What is the resulting difference in GDP? Is this difference greater or smaller than the change in I? Why? When I drops from $200 billion to $100 billion, how much must GDP drop?

Answer 1

a.

GDP increased to $3600 when investment increase by 100 billion. GDP increased by 300. GDP increase thrice of the increase in investment because of the multiplier effect. Therefore increase in GDP is greater than increase in investment.

b.

GDP increased to $3600 when investment increase by 200 billion. GDP increased by 600.GDP increase thrice of the increase in investment because of the multiplier effect. Therefore increase in GDP is greater than increase in investment.