Question

In order to improve its economy, a city's mayor convinced a company to open a new branch in his city. As a consequence, 1000 more people will be employed. It is a well-known tradition of that city to spend only 95% of one?s income and save the remaining 5%. For example, if an employee gets 100 per year, they will spend 95 of those 100, and in turn 95% of those 95 will be spent, and so on.

• If each employee will get 100,000 how much total expenditure will result from the new branch?

• Calculate the value of the multiplier.

Answer #1

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