In order to financially stimulate the nation, the Federal government injected $9

Question

In order to financially stimulate the nation, the Federal government injected $900 billion dollars into the economy. However, the results were less than spectacular. One reason could have been a failure to understand the marginal propensity to consume. Assume the marginal propensity to consume (MPC) was only 0.4. How much of that $900 billion went to increased consumption? Where did the rest of the money go?

Increased consumption: ________________________

Where did the rest go? _________________________

Using MPC = 0.4, what is the spending multiplier (the actual numerical value please):

___________________

What was the implied change in income as a result of the stimulus package?

__________________

Explanation / Answer

Increased consumption: $1500 Billion

Using MPC = 0.4, what is the spending multiplier (the actual numerical value please): 1.67

What was the implied change in income as a result of the stimulus package? $2400 Billion

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