QUESTION 36 (4 marks)
A hypothetical $80 million local-government purchase starts a spending process. In each subsequent round, recipients spend 60% of the new income domestically. In a simple closed model without tax, calculate the first three rounds including the original purchase and the eventual total income increase.
Practice marking scheme
Answer
Rounds: $80m, $48m and $28.8m; eventual total: $200m.
Working
The first three injections of income are 80, 80 × 0.60 = 48, and 48 × 0.60 = 28.8 million. k = 1/(1 − 0.60) = 2.5, so total income rises by 80 × 2.5 = $200 million. The original $80 million is included, rather than added again.
Marking criteria
- Calculates the three rounds in the correct order. [2 marks]
- Calculates the multiplier of 2.5. [1 mark]
- Calculates a total of $200 million without double-counting. [1 mark]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.