Problem:
Economists have determined that the economic multipliers for the fictional countries of Zolanda and Uprait are 3.24 and 6.79 respectively.
Discuss the multiplier effect including a description of what it describes in macroeconomic terms, how it is determined, and an illustration of how it is defined.
Contrast the economic effects on each of these economies their respective multipliers will have.
The government of Uprait has decided to stimulate its economy by increasing its spending during the upcoming fiscal year. The government's economic advisors have determined that for each 100 in stimulus spending received, 31% will be repaid to the government for taxes, 22% of after-tax income will be saved, 26% will be spent on imports, and the remaining balance will be spent on domestically produced goods and services. Determine what fraction of expenditures is recycled and calculate the value of Uprait's multiplier. Show your calculations.