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a. If buiness leaders invest a total of $10 billion of accumulated cash, what is the maximum expected change in GDP if Islandia's marginal propensity to consume is 0.6?

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Parrain

Answer:  $22.5 billion

Explanation:

The change in GDP will be determined by the Multiplier.

Change in GDP = Multiplier * Increase in Investment

Multiplier = 1 / ( 1 - Marginal propensity to Consume)

= 1 / ( 1 - 0.6)

= 2.5

Change in GDP = 10 * 2.25

= $22.5 billion

The  maximum expected change in GDP should be $22.5 billion.

Calculation of the change in GDP:

We know that

Change in GDP = Multiplier * Increase in Investment

Also,

Multiplier = 1 / ( 1 - Marginal propensity to Consume)

So,

= 1 / ( 1 - 0.6)

= 2.5

now

Change in GDP = 10 * 2.25

= $22.5 billion

hence, The  maximum expected change in GDP should be $22.5 billion.

Learn more about GDP here: https://brainly.com/question/24317041

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