Suppose that investment demand increases by $700 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 90 percent.
(a) Compute four rounds of multiplier effects.
Changes in This. Cumulative Change
Cycle's Spending in Spending(in billions)
(in billions)
First cycle- 700.0 700.0
Second cycle-
Third cycle-
Fourth cycle-
(b) What will be the final cumulative impact on spending?($ billion)