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29 May, 05:05

Troll island is a small island nation that recently experienced an autonomous change in aggregate expenditures (ae). ae increased by 2 billion, and the marginal propensity to consume on troll island is equal to 0.6. what is the change in troll island/'s real gdp after the increase in ae

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Answers (2)
  1. 29 May, 06:49
    0
    troll island's real gdp after the increase in ae is 5

    Explanation:

    MPC = 0.6

    MPS = 1 - 0.6

    Multiplier = 1/1-MPC

    =1/1-0.6

    (1/1-0.6) * 2

    =5
  2. 29 May, 06:55
    0
    The change in Troll's Island real gdp after the increase in ae is 5 billion

    Explanation:

    In this question, we are asked to calculate the change in Troll's Island GDP, given that its aggregate expenditure increased by 2 billion and the marginal propensity to consume MPC on Troll Island is 0.6

    Firstly, to compute this, we need to calculate the multiplier.

    Mathematically,

    Multiplier = 1 / (1-mpc) or 1/mps

    Where mps is marginal propensity to save which is 1-mpc = 1-0.6 = 0.4

    Multiplier = 1/0.4 = 2.5

    Now, we proceed to calculate the change in GDP

    Mathematically, this is equal to multiplier * change in aggregate expenditures = 2.5 * 2 billion = 5 billion
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