Macro- The Economics of a Pandemic: Who Benefits From Fiscal Policy Stimul...
If those restauranteurs spend their new income of 42.19
million dollars on leisure goods, they'll provide 31.64
million dollars in new income to the sellers of those leisure
goods,
The sellers of leisure goods then spend part of that 31.64
million dollars in new income on cars, providing 23.73
million dollars of new income to car sellers, allowing those
car sellers to spend part of it on other goods...
The process doesn't go on forever, but it carries on for
some time.
Luckily, we have an equation for calculating the total
amount of spending from an increase in government
purchases. You can now see the formula to your right.
Econ Tutor
Remember, our MPC is 0.75 in this example. Given that
the government started things off by spending $100
million, what will be the total increase in income from this
stimulus?
Total Change = Change in G x $\frac{1}{1 - MPC}$