1. Calculate the multiplier and the change in real GDP.

An economy has no imports and no income taxes, MPC is 0.80, and real GDP is $150 billion. Businesses increase investment by $5 billion.

2. Calculate the new level of real GDP and explain why real GDP increases by more than $5 billion.

An economy has no imports and no income taxes, MPC is 0.80, and real GDP is $150 billion. Businesses increase investment by $5 billion.

3. In an economy with no imports and no income taxes, an increase in autonomous expenditure of $2 trillion increases equilibrium expenditure by $8 trillion. Calculate the multiplier and the marginal propensity to consume.

What happens to the multiplier if an income tax is introduced?