Consumption Quiz

1) The increase in investment spending to 50 billion dollars has a very significant positive affect on Real GDP. You find the multiplier, which is 1/1-mpc and you get that the multiplier is 5. Thus to find the affect on the real GDP of a country, you do the multiplier multiplied by the increase in investment that is added to GDP, which results in $250 billion inserted into the economy.

2)  It has a lot to do with expectations .Expectations have an affect on how much money individuals spend on goods and services in an economy. For example, if someone has money saved up with no debt and their expectations to gain wealth are positive, then they will consume more and be more willing to spend their money. However, a person who owes a lot of money and does not expect to gain a lot of wealth, than they will definitely not want to spend money on consumption.