Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.60 of each additional dollar they earn and save the remaining $0.40. If there are no taxes and no international trade, the oversimplified multiplier for this economy is .
Suppose investment spending in this economy increases by $300 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on.
Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and eventually on total output and income.

Change in Investment Spending = $250 billion.
First Change in Consumption = $___ billion.
Second Change in Consumption = $___ billion.
Total Change in Output = $___ billion.

Now consider a more realistic case. Specifically, assume that the government in our hypothetical economy collects income taxes. In this case, the multiplier will be the oversimplified multiplier you found earlier. Suppose that the price level in our economy remains the same and that there is still no international trade. Now, however, the government decides to Implement an income tax of 5% on each dollar of income. The MPC and MPS, however, remain the same as before. In this case, after accounting for the impact of taxes, the multiplier in this economy is and a $250 billion increase in investment spending will lead to a billion increase in output.