Answer:
$50 billion
Explanation:
The net effect on aggregate demand of the additional investment spending will be derived by multiplying the increased spending by the Multiplier.
[tex]Multiplier = \frac{1}{1-MPC} = \frac{1}{MPS}[/tex]
Where MPC is the marginal propensity to consumer, and
MPS, the marginal propensity to save.
Therefore the multiplier = [tex]\frac{1}{1-0.6} =\frac{1}{0.4}[/tex] = 2.5
Accordingly, the increase in aggregate demand as a result of the increase in the investment
= 2.5 * $20 billion
= $50 billion
