Reference no: EM13372428

In each of the following situations determine the direction and size of the change in total output and income that will result from each change in nonincome-determined spending.

1. After several years of drought, farmers in central Illinois spend $50 million on irrigation equipment at a time when households do not spend 25% of additional income they receive. Change in GDP is $200 million (=4 x $50)

2. The federal government cuts spending on the purchase of new goods and services by $35 billion at a time when households are not spending 40% of additional income they receive.

3. Developers borrow $120 million for new home construction in a suburb of Denver at a time when households are spending 70% of additional income received.

4. Business spending for machinery and equipment falls by $6 billion after predictions of a recession. Households spend only 50% of additional income they receive, due to the predictions.

5. Imports increase by $25 million at the same time exports increase by $20 Million. Households spend 60% of additional income received.