Question

The government has decided on a tax rebate program to stimulate the economy. Suppose that you receive $1200 and you spend 80% of this, and each of the people/businesses who received what you spend also spend 80% of what they received, and this process continues for 24 iterations. According to the multiplier principle of economics, the effect of your $1200 tax rebate on the economy is compounded. What is the total amont spent?

Hint: Start adding up. What do you spend? What does the next person spend? The next? You will end with 24 terms.

Answer 1

We know that when government provides tax rebates, the benefit for the same is not only to one person, but the total industry gains.

In the given case, 80% of $1200$ is utilized by the first person and then again 80% by the second person i.e 80% of $960 and thus goes on till 24 iterations in a similar way. So, has been calculated in the below table.

The given data is executed in an excel:

Therefore, the total amount spent is $4777.33

The excel formula and calculation used are shown below:

Please don't forget to rate the answer if its helpful, thank you.