m. The multiplier effect Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.60 of each additional dollar they earn and save the remaining $0.40. If there are no taxes and no international trade, the oversimplified multiplier for this economy is Suppose investment spending in this economy increases by $150 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and eventually on total output and income Change in Investment Spending - 5150 billion First Change in Consumption Second Change in Consumption - 5 beton bi Total Change in Outpot - bilion Tow consider a more realistic case. Specifically, assume that the government in our hypothetical economy collects income taxes. In this case, the multiplier will be the oversimplified multiplier you found care Suppose that the orice level in our economy remains the same and that there is still no international trade Now, however, the overnment decides to implement an income tax of 10% on each dost of income The MPC and MPs, however in the same as before in this car counting for the impact of taxes, the mulier in this economy is und $150 bin create event on to thon in output