Question

1. (10 pts) Use a chart to show how 10 rounds of expenditure will increase real GDP. In particular, show the increase in the current round, and the cumulative increase from previous rounds.

   Expenditure Multipliers”: (20 points)

2. (10 pts) Describe how the multiplier process works.

Answer 1

رر Smai Change in 100 90 22.9 Suppose in Tear Ga bey (MPC=0.9 Year in c Ain AE 700 90 90 2 81 81 3 22.9. 72,9 65.61 65.61 65.61 59.049 59.049 59.049 53.1441 53-1441 $3.1441 7 47.8296 47.8296 47.8296 8 43.0467 43. 0467 43.6467 9 38.7420 38.7420 38.7420 34. 8678 34.8670 니 S 34.3618 Zoo it will increan Say rink or by, too, by which will increase consph by go in next period which further a income by 90 which further mercon cosp by 2 and this conhnies. 81 they soral charge in Innen- Impe (100) 1JOo ro.9 4 MP2 = 0.9 4 AG=100 Thus AY = 1000