If the local marginal propensity to consume is 0.8, by how much has increased investment spending ra

Economics
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 gold miners and celebrity gawkers, local businesses and some national chains have increased investment spending by $5 mil, building everything from motels to big box stores.      If the local marginal propensity to consume is 0.8, by how much has increased investment spending raised local gross domestic product and income?

Jul 22nd, 2015

Thank you for the opportunity to help you with your question!

This is the question on multiplier effect

Output multiplier = 1/(1-marginal propensity to consume) = 1/(1-0.8) = 5    .......( output multiplier)

increased investment = $ 5 million

therefore, increased gross domestic product and income = output multiplier X increased investment = 5 x $5 mil

increased gross domestic product and income = $25 million (Answer)

Please let me know if you need any clarification. I'm always happy to answer your questions. Kindly best this answer if it has helped you.
Jul 22nd, 2015

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Jul 22nd, 2015
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Jul 22nd, 2015
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