What will be the eventual change in GDP if a major internet service provider decides to spend $70 million on new server equipment, with a marginal propensity to consume of 0.8?
Calculating the Eventual Change in GDP
The eventual change in GDP can be calculated using the formula:
Change in GDP = Marginal Propensity to Consume (MPC) * Initial change in spending
In this case, the major internet service provider decides to spend $70 million to purchase new server equipment, and the marginal propensity to consume (MPC) is given as 0.8.
To find the eventual change in GDP, we multiply the initial change in spending ($70 million) by the MPC (0.8):
Change in GDP = 0.8 * $70 million
Change in GDP = $56 million