Homework Answers
MPC =0.85
Multiplier = 1/(1 – MPC) OR
Multiplier = Change in Income/ Change in Investment.
Using the first formula,
Multiplier = 100/15 = 20/3
Using the second formula,
20/3 = Change in Income/ 100 (Rise in Investment spending = $100
million)
So, Change in Income in first round = $666.67 million
As MPC = 0.85
Change in Income in second round = 0.85 * 666.67 = $566.67
million.
So, consumption spending generated is $100 million. Option a is
right.
Add Answer to:
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