Imagine an isolated economy made up of individuals who are both consumers and se
ID: 1141756 • Letter: I
Question
Imagine an isolated economy made up of individuals who are both consumers and sellers. The table below tracks the income and spending of a small part of this economy: Assume that individual A has just decided to spend $11,000 in a store owned by Individual B and that individual else in this economy, has a marginal propensity to consume (MPC) of 0667 8 individuals called A through H.Naturally, the whole economy includes additional people B, along with everyone Instructions: Round your answers to two decimal places when appropriate a. Assume that every individual who information to complete the table below receives additional Income will spend an additional amount according to his or her MPC. Use this income will Colculeting the Expenditures Multiplier es Extra Incone (dellars) Individual Extra Expendsture (de11ars) $11,000 452 14521 646 b. What is the cumulative expenditure for Individuals A through H? c. Using the MPC value for this economy, what is the expenditures multiplier?Explanation / Answer
b)
Cummulative expenditure for individual A through F = 2347258. 78
c)
Expenditure Multiplier = 1/ (1-MPC)
= 1/1-0.667
= 1/ 0.333
= 3
d)
Increase in real GDP = Change in Expenditure * Value of Multiplier
= 11,000*3
= $ 33,000 Approx.