Figure 9-5

-If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

Question

Figure 9-5
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-If the level of investment spending increases by $100 and the MPC in the economy is 0.8, then the cumulative spending increase after three rounds of spending is

Quizplus · Accepted Answer

The cumulative spending increase after three rounds can be calculated using the formula for the spending multiplier effect: Initial Increase + (Initial Increase * MPC) + (Initial Increase * MPC^2). With an initial increase of $100 and an MPC of 0.8, the calculation is $100 + ($100 * 0.8) + ($100 * 0.8^2) = $100 + $80 + $64 = $244.

Figure 9-5 ​

Figure 9-5