If the consumption function for an economy is C=1700 + .6 DI and there is a $300 billion increase...?

If the consumption function for an economy is C=1700 + .6 DI and there is a $300 billion increase in planned investment spending. What is the impact on Real GDP and how do would I solve it?

2013-10-08T17:54:09Z

What made you want to put 1/(1 - 0.6)? I know where you got the .6 from, but what about the other numbers.

Anonymous2013-10-08T17:49:02Z

Favorite Answer

You have to fing the multiplier which is 1/(1-0.6)=2.5.
The increase in $300b investment will increase real GDP=2.5 x 300=$750b.

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