In order to financialy stimulate the nation, the Fed government injuected $900 b

Question

In order to financialy stimulate the nation, the Fed government injuected $900 billion dollars into the economy. Results were less than spactular. One reason could have been failure to understand the Marginal Propensity to Consume (MPC). Asuume MPC was only 0.4 How muc h of the $900 billion went to increased comsumption. Where did the rest of teh money go? Please show all math with as clear as explanition as possible

Using MPC =0.4 what is the multiplier (the actual value please

What wast eh total change in spending as a result of the stimulus package

Explanation / Answer

multiplier=1/(1-b)

=1/(1-0.4)=5/3

now since
MPC= (del C)/(del Y)

=>> del C=0.4*900=360 billion dollar..

as
(del Y)=(del C) +(del I)
the rest money goes to the investment..

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