Question 4: Please define the oversimplified multiplier and use your knowledge of the concept to answer the following question. Suppose that GDP is currently $25,000 and the marginal propensity to consume is.50. If autonomous investment increases by $5,000, what will GDP be in the new equilibrium? Assume the oversimplified multiplier is accurate.
Any change in a component of aggregate demand will result in a larger change in equilibrium GDP, called the oversimplified multiplier. The equation would be: 1/1-.50=2.
This means that the oversimplified multiplier is 2, so instead of an increase of $25,000+5,000=30,000, the GDP will be $30,000, as the extra...
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