Answer to Question #289279 in Microeconomics for ANU

Question

A new factory in a small town has an annual payroll of $6 million. It is expected that 60% of this money will be spent in the town by factory personnel. The people in the town who receive this money are expected to spend 60% of what they receive in the town, and so on. What is the total of all this spending, called the total economic impact of the factory, on the town each year?

Answer 1

$P=6\cdot(0.6+0.36+0.216+...)=6\cdot\frac{0.6}{1-0.6}=6\cdot\frac{0.6}{0.4}=9$ millions.