Suppose booming economies in the BRIC nations causes net exports to rise by $75 billion in the United States. If the MPC is 0.8 what will be the change in equilibrium GDP

$375 billion

Explanation:

Given: MPC= 0.8

            Net export rises by $75 billion.

There are factors that determine GDP are:

MPC is marginal propensity to consume, the higher MPC result in higher multiplier, thus there is an increase in GDP, assuming other factor remain constant.

Multiplier=

First finding the multiplier.

Multiplier=

⇒ Multiplier=

Opening parenthesis.

∴ Multiplier= 5

Now, finding the change in equilibirium GDP due to rise in net export.

Change in equilibirium GDP=

⇒ Change in equilibirium GDP=

∴ Change in equilibirium GDP=

Hence, there will be increase in $375 billion GDP if the MPC is 0.8.

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