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In order to financially stimulate the nation, the Federal government injected $900 billion dollars into the economy. However, the results were less than spectacular. One reason could have been a failure to understand the marginal propensity to consume. Assume the marginal propensity to consume (MPC) was only 0.5. How much of that $900 billion went to increased consumption? Where did the rest of the money go?
Increased consumption:
Where did the rest go?
MPC calculates the percentage that a person is projected to spend, so it is likely that the rest of the money was saved. It is also possible that the money could have been destroyed from a natural disaster or hidden away for "safe keeping".
Using MPC = 0.5, what is the multiplier (the actual numerical value please):
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