nsumer spending increases Households 4: More income Product markets 6: Sales increase 2: Sales increase by $100 billion 1: Government spends $100 billion Government Factor markets Business firms 3: Increased jobs and w Multiplier process In the figure above, a "cycle" is originated by a change in spending in the product market. Assume the MPC is 0.80. a. How much spending would occur in the third cycle? billion b. How many spending cycles would occur before consumer spending increased by $200 billion? 5 cycles (Hint: Focus on consumer spending.)
nsumer spending increases Households 4: More income Product markets 6: Sales increase 2: Sales increase by $100 billion 1: Government spends $100 billion Government Factor markets Business firms 3: Increased jobs and w Multiplier process In the figure above, a "cycle" is originated by a change in spending in the product market. Assume the MPC is 0.80. a. How much spending would occur in the third cycle? billion b. How many spending cycles would occur before consumer spending increased by $200 billion? 5 cycles (Hint: Focus on consumer spending.)
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 5.10P
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Transcribed Image Text:nsumer spending increases
Households
4: More income
Product
markets
6: Sales increase
2: Sales increase by $100 billion
1: Government
spends
$100 billion
Government
Factor
markets
Business
firms
3: Increased jobs and w
Multiplier process
In the figure above, a "cycle" is originated by a change in spending in the product market.
Assume the MPC is 0.80.
a. How much spending would occur in the third cycle?
billion
b. How many spending cycles would occur before consumer
spending increased by $200 billion?
5 cycles
(Hint: Focus on consumer spending.)
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