Spending multiplier effect

Reference no: EM13106322

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.

Reference no: EM13106322

Questions Cloud

What is the submarines acceleration : A 1460-kg submarine rises straight up towards the surface. Seawater exerts both an upward buoyant force of 16300 N on the submarine, as well as a downward resistive force of 1090 N. What is the submarine's acceleration?

Calculate the total amount : During the 1950s and 609, Mr. T. Ohno of Toyota developed the k a n Production System. Subsequently many other Japanese automobile companies adopted it.

Benefits and disadvantages of soft-path energy development : Write down the advantages and disadvantages of soft-path energy development compared to hard-path energy development?

P-values-null hypotheses and confidence intervals : The data studies the effect of dietary calcium on blood pressure. In the experiment, one group of black male adults received calcium supplements for 12 weeks.

Spending multiplier effect : 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.

Importance of confidence interval : What does a confidence interval tell us and why is it importance to use a confidence interval?

Recognize risks-benefits of extracting nonrenewable energy : Recognize risks and benefits of extracting or using one kind of nonrenewable and one kind of renewable energy resource from that ecosystem, or in areas near that ecosystem.

Case study - new multi-million dollar building renovation : You are the project manager for a new multi-million dollar building renovation for your organization. The company needs to maximize the space that they have and the best approach is to do a staggered build out in order to better maximize the space in..

Define the term transfer of learning : A critical issue in training is the transfer of training, and ethics training is no exception. How could the transfer of ethics training back to the workplace be maximized? Define the term, transfer of learning.

User Account

All Pages