Income Multiplier Assignment
10 Points (Only if handed in ontime)
(http://faculty.washington.edu/krumme/350/exercises/multiplier.html)
Some Answers!
Modify (in three different ways) the
simple Milltown
multiplier example used in class (propensity to consume
locally = .8; import propensity of local service sector = .75]
 Change in what is "Exogenous" (or "Basic"):
Assume the American Textile Co. (ATC = sole customer of Milltown Gray
Cloth Corporation [MGCC]) is relocating its plant facilities
into our community ( = Milltown). Its input requirements are as follows:
for every 1$ of
cloth (from our local MGCC plant) to be processed into a final
product, it requires 1$ of labor (labor input = 50% or .5). Calculate the
new total income, including multiplier effects (assuming the multiplier
remains unchanged  at least in the shortrun). ATC's total
production value shall be $ 80 mill.
 Change in the PCL (Propensity to Consume Locally):
How do (a) the multiplier(s) and (b) the total income change after
we account for some remarkable changes occurring in our community. While
40% of ATC's wage bill goes to workers retained and relocated
from its former location into our community (Some of these workers are
sending part of their payckecks to their families left behind and, as a
group, thus have a lower local consumption propensity [pcl=.6] than the
existing workers/households), the
other 60% go to workers recruited locally and largely consist of formerly
unemployed spouses of MGCC workers. The additional income earned by
this secondincomehousehold labor force is half saved and half spent
locally.
 Change in the "ICLES" Coefficient ("Import
Substitution"):
After
all this has happened, the local service sector "decides" that
the additional local income justifies some more local production of
locally consumed products (=import substitution). As a result, the service
sector "leakage" coefficient declines from .75 to .65 . Calculate the new
total income.
Establish the coefficient matrix for this
new expanded
economy.
Please Note:

Be explicit throughout about
 what you are doing and why you are doing it (in your own words!)
 assumptions you possibly need to make (e.g. in part "2")!
 Please submit this assignment: on paper (with the OPTIONAL possibility to
move it to
your Webpage later.
Thanks!
To:
From: 
Milltown Grey Cloth 
Households 
Local Services 
Milltown Grey Cloth 
0 
0 
0 
Households 
.8 
0 
.25 
Local Services 
0 
.8 
0 
Imports 
.2 
.1 
.75 
Savings 
0 
.1 
0 
Total 
1.0 
1.0 
1.0 