Assume that Polaroid decides to build a camera-research facility in Twin Falls, Idaho. The plant will employ 1,000 workers who will be guaranteed full-time jobs at annual earnings of $25,000. If the marginal propensity to consume in Twin Falls is 3/4, what change in income will result from operation of the plant for one year?
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A. B. C. D.D
The expenditure multiplier is found by M = 1/(1-MPC). Thus, here M = 1/(1-3/4) = 4. Therefore the 1,000 x $25,000 = $25 million increase in aggregate expenditures is magnified four times to $100 million.