Suppose that investment demand increases by $100. Assume that households have a marginal propensity to consume of 80 percent. Compute the first three rounds of multiplier effects as follows: a) What are the first cycle changes in spending? Total cumulative change equals? b) What are the second cycle changes in spending? Total cumulative change equals? c) What are the third cycle changes in spending? Total cumulative change equals?
Suppose that investment demand increases by $100. Assume that households have a marginal propensity to consume of 80 percent. Compute the first three rounds of multiplier effects as follows: a) What are the first cycle changes in spending? Total cumulative change equals? b) What are the second cycle changes in spending? Total cumulative change equals? c) What are the third cycle changes in spending? Total cumulative change equals?
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 11SQ
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- Suppose that investment demand increases by $100. Assume that households have a marginal propensity to consume of 80 percent. Compute the first three rounds of multiplier effects as follows:
a) What are the first cycle changes in spending? Total cumulative change equals?
b) What are the second cycle changes in spending? Total cumulative change equals?
c) What are the third cycle changes in spending? Total cumulative change equals?
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