What will be its new level of real GDP?

Question

Suppose that a certain country has an MPC of .9 and a real GDP of $400 billion. If its investment spending decreases by $4 billion, what will be its new level of real GDP?

Answer 1

ΔY/ΔI=1/(1-MPC)

ΔI = -4

MPC=0.9

ΔY= -4/(1-0.9) = -4/0.1 = $ -40 billion

Answer: new level of GDP will be less for $40 billion.