Final cumulative impact on spending

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Suppose that investment demand increases by $700 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 90 percent.

(a) Compute four rounds of multiplier effects.

Changes in This. Cumulative Change

Cycle's Spending  in Spending(in billions)

(in billions)

 First cycle- 700.0 700.0

Second cycle-

Third cycle-

Fourth cycle-

(b) What will be the final cumulative impact on spending?($ billion)

Reference no: EM131687331

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