Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 4 billion, and the marginal propensity to consume on Troll Island is equal to 0.7. What is the change in Troll Island's real GDP after the increase in AE?

Change in real GDP = $13,333,332,000

Explanation:

MPC = 0.7

Change in real GDP = Change in autonomous spending * Autonomous spending multiplier

Change in real GDP = $4 billion * 1 / (1 - MPC)

Change in real GDP = $4 billion * 1 / 1 - 0.7

Change in real GDP = $4 billion * 3.33333

Change in real GDP = $13,333,332,000

Thus, the real GDP will rise by $13.33 billion

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