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 overall change in income as a result of the stimulus package after the multiplier completely works its way through the economy?