Suppose the Government Spends $3 Million on Highways

question 6

Short Answer

Suppose the government spends $3 million on highways. Some of this money is earned by the highway workers who in turn spend $1,500,000 on food, travel, and entertainment. This causes $750,000 to be spent by the workers in the food, travel, and entertainment industries. This $750,000 causes another $375,000 to be spent; the $375,000 causes another $187,500 to be spent, and so on. (Notice that each expenditure is half the previous one.) Assuming that this process continues forever, how many million dollars in total spending is generated by the original $3 million expenditure?

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