If the mpc is .8 and there is a $10 million increase in investment spending, then the aggregate demand curve will shift up and to the right by:
a) $50 million.
b) $12.5 million.
c) $8 million.
d) $2 million.

Option (A) is correct.

Explanation:

Given that,

Marginal propensity to consume (MPC) = 0.8

Increase in investment spending = $10 million

Marginal propensity to save (MPS) = 1 - MPC

                                                         = 1 - 0.8

                                                         = 0.2

Spending multiplier =

                                 =

                                 = $50 million

Therefore, If the MPC is .8 and there is a $10 million increase in investment spending, then the aggregate demand curve will shift up and to the right by $50 million.

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