Business, 14.07.2020 19:01 leeshaaa17

Consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn to save the remaining $0.25. The marginal propensity to consume (MPC) for the economy is , and the spending multiplier for the economy is .

Suppose the government in this economy decides to increase government purchases by $250 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to _. This increases income yet again, causing a second change in consumption equal to . The total change in demand resulting from the initial change in government spending is .

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