4. the multiplier effect of a change in government purchases consider a hypothetical closed economy in which households spend $0.75 of each additional dollar they earn and save the remaining $0.25. the marginal propensity to consume (mpc) for this economy is , and the multiplier for this economy is . suppose the government in this economy decides to decrease government purchases by $250 billion. the decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to . this decreases income yet again, causing a second change in consumption equal to . the total change in demand resulting from the initial change in government spending is .
