Businesses in the nation of Londonia have been accumulation cash because they have a pessimistic outlook of the national economy. Recent changes in the economic outlook of Londonia have caused business leaders to begin to invest some of their accumulated cash. Suppose that businesses in the county invest a total of $40 billion of this cash.
a. What would be the maximum expected change in GDP if Londonia's marginal propensity to consume (MPC) is 0.6?
$__________ billion
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b. Suppose that the recent economic outlook in the country of Bergenia has been the opposite. Businesses have postponed planned investment and have begun to accumulate cash. If businesses in Bergenia postpone $12 billion of their planned investments, what would be the maximum expected change in GDP if its marginal propensity to save (MPS) is 0.25?
$____________billion
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