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Suppose the construction of the $360M stadium is to be financed entirely with debt to be repaid over 20 years. The repayment burden is negilible in the short run. If the multiplier effect is Additional Local GDP = [1/(1-MPC)] x initial shift in autonomous expenditures, and Marginal Propensity to Consume is 80%, how much economic activity is generated? $1.8 billion

Suppose that the $360M is to be financed by an increase in taxes. The increase in taxes will raise the $360M immediately. How much economic activity is created?

Suppose that the stadium is to be financed by existing cash balances of the State, and the State will have to give up the construction of the Convention Center that was planned. How much economic activity is generated?

What is the impact of the construction of the stadium on the local Real GDP and the Price Level, depending on whether the local economy is at or below full employment?

What is the real contribution to the local economy, what is the total multiplier effect, if $100M's worth of components such as structural steel, electrical equipment, seats etc. is purchased from out-of-state?

Suppose the team is extremely successful and the stadium is full every week.
How does the spending by the locals affect economic activity? How does the spending from out-of-town visitors affect the economic activity?

How much additional tax-revenue does all of the above generate? Income tax on increased employment level, sales tax on additional spending etc.

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Solution Summary

The solution determines the total multiplier effect in the local economy.

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Suppose the construction of the $360M stadium is to be financed entirely with debt to be repaid over 20 years. The repayment burden is negligible in the short run. If the multiplier effect is Additional Local GDP = [1/(1-MPC)] x initial shift in autonomous expenditures, and Marginal Propensity to Consume is 80%, how much economic activity is generated? $1.8 billion.

Suppose that the $360M is to be financed by an increase in taxes. The increase in taxes will raise the $360M immediately. How much economic activity is created?
The economic activity created is $1.8 billion less $360 million taxes, that is $1.44 billion.

Suppose that the stadium is to be financed by existing cash balances of the State, and the State will have to give up the construction of the Convention Center that was planned. How much economic activity is ...

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