Because of a recession in Japan, net exports from the United States decrease by $10 billion.If the MPC is 0.75, how much less spending will occur in the U.S.economy in the second "round" of spending?

Question

Quizplus · Accepted Answer

In the second "round" of spending, the decrease in spending will be the initial decrease ($10 billion) multiplied by the marginal propensity to consume (MPC), which is 0.75. However, since it's the second round, we calculate the effect of the MPC on the initial decrease, not the total multiplier effect. So, $10 billion * 0.75 = $7.5 billion.

Because of a Recession in Japan, Net Exports from the United