suppose a decrease in interest rates causes aggregate expenditures on investment to increase by $50. if the marginal propensity to consume is 0.9, then what is the total impact of this increase in aggregate expenditures on investment on real gdp?

The most widely used indicator of an economy's size is its gross domestic product (GDP). According to the international norm, it is typically estimated by the nation's official statistical agency. A GDP growth rate of 2% to 3% is considered desirable. The GDP growth rate is a gauge of the state of the economy. The economy is expanding when the number is positive. Growth in the size of the workforce and growth in the productivity (output per hour worked) of that workforce are the two fundamental drivers of economic growth.

Given: Initial change in aggregate expenditures =$50; MPS =0.9.

Find the expenditure multiplier. Expenditure multiplier =1/(1−MPC)=1/(1−0.9)=1/(0.1)=10.

Total impact from the initial increase in aggregate expenditures on real GDP = Initial change in aggregate expenditures x expenditure multiplier =$50×10=$500.

Therefore, an increase in aggregate investment spending will cause real GDP to increase by $500."

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