Answer:
initial change in consumption = $210 billion
correct option C) -$210 billion
Explanation:
given data
purchases amount = $300 billion
we consider here marginal propensity to consume is = 0.7
and oversimplified multiplier = 3.33
solution
we get here initial change in consumption tat is
initial change in consumption is = MPC × purchases amount ..............1
initial change in consumption = 0.7 × $300
initial change in consumption = $210 billion
and
here decreases income again causing of change in consumption that si decreases income = initial change × MPC ....................2
decreases income = $210 billion × 0.7
decreases income = $147 billion
and
now we know total change in demand by initial change that is
total change in demand = oversimplified multiplier × purchases amount
total change in demand = $300 × 3.33
total change in demand = $1 trillion
