The Spending Multiplier Effect


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The Spending Multiplier Effect 1 answer below » The Spending Multiplier Effect

The following examples relate to the multiplier effect.
In each of the following situations determine the direction
and size of the change in total output and income that will
result from each change in nonincome-determined spending.

1. After several years of drought, farmers in central Illinois spend $50 million on
irrigation equipment at a time when households do not spend 25% of
additional income they receive.
Change in GDP is $200 million (=4 x $50)

2. Document Preview: View complete question » The Spending Multiplier Effect

The following examples relate to the multiplier effect.
In each of the following situations determine the direction
and size of the change in total output and income that will
result from each change in nonincome-determined spending.

1. After several years of drought, farmers in central Illinois spend $50 million on
irrigation equipment at a time when households do not spend 25% of
additional income they receive.
Change in GDP is $200 million (=4 x $50)

2. Document Preview: The Spending Multiplier Effect

The following examples relate to the multiplier effect.
In each of the following situations determine the direction
and size of the change in total output and income that will
result from each change in nonincome-determined spending.

1. After several years of drought, farmers in central Illinois spend $50 million on
irrigation equipment at a time when households do not spend 25% of
additional income they receive.
Change in GDP is $200 million (=4 x $50)

2. The federal government cuts spending on the purchase of new goods and
services by $35 billion at a time when households are not spending 40%
of additional income they receive.

3. Developers borrow $120 million for new home construction in a suburb of
Denver at a time when households are spending 70% of additional income
received.

4. Business spending for machinery and equipment falls by $6 billion after
predictions of a recession. Households spend only 50% of additional
income they receive, due to the predictions.

5. Imports increase by $25 million at the same time exports increase by
$20 Million. Households spend 60% of additional income received. Attachments: The-spending-….rtf View less » Sep 18 2013 08:31 AM

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