Suppose the marginal propensity to consume (MPS) equals 0.20, an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by:

Md Ariful Islam

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Md Ariful Islam

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Multiplier effect is an effect in economics, in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. If MPS = 0.20, then multiplier is m = 1/mps = 5, so an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by 100*5 = $500.
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