Consider two closed economies that are identical except for


Consider two closed economies that are identical except for their marginal propensity to consume (MPC). Each economy is in equilibrium with real GDP and aggregate expenditure equal to $100 billion. The first economy's MPC is 0.5. Therefore, its initial aggregate expenditure line has a slope of 0.5 and psses through the point (100,100). The second economy's MPC is 0.75. Therefore, its initial aggregate expenditure lines has a slope of 0.75 and passes through the point (100,100). Now suppose there is an increase of $20 billion in investment in each economy. In the first economy (with MPC = 0.5), the $20 billion increase in investment causes aggregate output demanded to increase by_________. In the second economy (with MPC = 0.75), the $20 billion increase in investment causes aggregate output demanded to increase by _____________. Therefore, a higher MPC is associated with a ________multiplier.

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Business Economics: Consider two closed economies that are identical except for
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