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If an economy consumes 75 percent of any increase in income, then an increase in autonomous investment of $1 billion could result in an increase in Real GDP of as much as?

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  1. ΔY/ΔI=1/(1-MPC)

    MPC=0.75

    ΔI=+1

    ΔY/1=1/(1-0.75)=1/0.25

    ΔY=1/0.25=100/25= +4 = +$4 billion

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