How to Calculate Real GDP with Marginal Propensity to Consume

What is the formula to calculate real GDP when given aggregate spending and marginal propensity to consume?

The formula to calculate real GDP when given aggregate spending and marginal propensity to consume is: Value of real GDP = 1 / (1 - MPC)

Real Gross Domestic Product (GDP) is a crucial indicator of a nation's economic performance, representing the total market value of all goods and services produced within the country's borders during a specific time period. In this case, we are given the following information:

Aggregate spending = $100

Marginal Propensity to Consume (MPC) = 0.8

Given the formula for calculating real GDP with MPC, we can substitute the values into the formula:

Value of real GDP = 1 / (1 - 0.8)

Value of real GDP = $500

Therefore, the real GDP would amount to $500 when an autonomous increase in aggregate spending of $100 million occurs with an MPC of 0.8.

It is important to understand how changes in aggregate spending and MPC can impact the overall economic output of a nation, as demonstrated by the calculation of real GDP in this scenario. By analyzing these factors, policymakers and economists can make informed decisions to promote economic growth and stability.