Assuming the MPC is 0.8, construct a table similar to the following table in this chapter.
a. Show what would happen in the first five rounds following an increase in investment spending from $400 billion to $800 billion.
b. If investment spending stays at $800 billion, what would be the ultimate effect on real GDP?
c. How much would consumption spending rise as a result of the rise in investment spending?

Transcribed Image Text:

Additional Spending in Each Round (billions of dollars per year) Total Additional Spending (billions of dollars per year) Round Initial increase in İnvestment spending 1,000 1,000 Round 2 600 1,600 Round 3 360 1,960 Round 4 216 2,176 Round 5 130 2,306 Round 6 78 2,384 2,431 Round 7 47 Round 8 28 2,459 Round 9 17 2,476 Round 10 10 2,486 Round 20 0.06 Very close to 2,500