Scenario 11-1
The information below is relevant to the following question(s).
Assume IBM decides,despite an ongoing recession,to build a new branch for computer analysis in Bozeman,Montana.The plant expects to spend $12 million to hire the necessary employees,all of whom move in from out of state to take the jobs.
-Refer to Scenario 11-1.If the marginal propensity to consume of the newly-employed workers was 3/4,what would be the total change in income that would result from the operation of the plant for one year?
A)$12 million
B)$48 million
C)$9 million
D)$27 million

Question

Quizplus · Accepted Answer

The total change in income would be four times the initial spending of $12 million, which is $48 million. This is because the marginal propensity to consume is 3/4, meaning that for every dollar earned, 75 cents are spent. Therefore, the additional income generated by the new jobs will be spent by the employees, resulting in a cumulative increase in income of four times the initial spending.

Scenario 11-1 The Information Below Is Relevant to the Following Question(s)