If an economy consumes 68 percent of any increase in disposable income, then an increase in autonomous investment of $1 billion would result in an increase in total spending of as much as

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Business

Maya Dunn

23 May, 10:13

If an economy consumes 68 percent of any increase in disposable income, then an increase in autonomous investment of $1 billion would result in an increase in total spending of as much as

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Answers (1)

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Brendon Conway · Answer 1

Answer: The answer is $3,125,000,000

Explanation:

Since autonomous investment is government investment in the economy

68% of the increase in disposable income was consumed

Using the equation

Since Y = yd, spending in the economy is represented by

Equation C = 0.68yd, investment = $1,000,000,000

Y = C + I

Y = 0.68Y + 1,000,000,000

Y - 0.68 = 1,000,000,000

Factor out the variable Y

Y (1 - 0.68) = 1,000,000,000

0.32Y = 1,000,000,000

Divide both sides by 0.32

0.32Y / 0.32 = 1,000,000,000 / 0.32

Y = 3,125,000,000

Therefore the increase in total spending will be $3,125,000,000