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Let's say there's an economy where people have an MPC of 0.90. The government increases its spending by $100 million to stimulate the economy. When
Let's say there's an economy where people have an MPC of 0.90. The government increases its spending by $100 million to stimulate the economy. When the government spends $100 million, output and income rise by that same amount. I've put this in the table you can see to your right. Econ Tutor Like you pointed out, not all households will be personally affected right away. The government only provided stimulus to some. But this is just the first step of a multi--step process. Those that receive the stimulus will take that $100 million and spend some part of it. Remember, we said the MPC was 0.90. That means that these recipients will spend: And we're still not done! Let's say the check recipients spent that 90.00 million dollars on things for their homes -- you know, furniture, major appliances, that sort of thing. That means that people who own stores that sell these home goods earn an additional 90.00 million dollars in income. And since we're assuming people in the economy have an MPC of 0.90, that means they'll spend how much of this new income? (Round your answer to two decimal places if needed.)
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