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Response to an increase in government spending

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Suppose an increase in income of a dollar elicits an increase in consumption of 50 cents, an increase in savings of 10 cents, an increase in investment of 5 cents, and an increase in imports of 5 cents. After three rounds of the multiplier process, by how much should GDP have increased in response to an increase in government spending of $400 million? Explain your reasoning.

Reference no: EM132600463

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