A research firm calculated that students who attend University spend about $2,760 each in the local economy for a total of $50.45 million. In total, the impact of their spending on the local economy is £63 million. Calculate the size of the student spending multiplier.
can someone tell me how to go about this?
To calculate the size of the student spending multiplier, we first need to understand what a spending multiplier is. The spending multiplier represents the total impact of an initial change in spending on the overall economy.
In this case, the research firm determined that students who attend University spend about $2,760 each in the local economy. They also stated that the total impact of their spending on the local economy is £63 million.
To calculate the spending multiplier, we will use the formula:
Multipler = Total Impact / Initial Change in Spending
In this case, the initial change in spending refers to the total amount spent by students in the local economy. So, we will use the total spending by the students, which is given as $50.45 million, as the initial change in spending.
Now, we can substitute the values into the formula:
Multiplier = £63,000,000 / $50,450,000
To get the value in dollars, we can convert the pounds to dollars using the prevailing exchange rate. Let's assume the exchange rate is 1 dollar = 0.8 pounds:
Multiplier = (£63,000,000 * 0.8) / $50,450,000 = $100,800,000 / $50,450,000
Now, divide the numerator by the denominator:
Multiplier ≈ 2
Therefore, the size of the student spending multiplier is approximately 2. This means that for every dollar spent by the students in the local economy, the total impact on the economy is about $2.