Questions

1. An economy experienced an initial change in investment spending of $5 billion. It has an MPC = 0.72. Calculate the multiplier to 4 decimal places. Explain what the multiplier tells you about an economy. (3 marks - 1 mark for calculation, 2 marks for explanation)
2. Using the example found in Figure 10.8, calculate the impact of this $5 billion dollar increase in investment spending. Complete the following table assuming that the MPC = 0.72 and calculate to 4 decimal places. (3 marks)

Change in Change in Change in income consumption savings Round 1 5.0000 3.6000 1.4000 Round 2 Round 3 Round 4 All other rounds Total