Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30. the marginal propensity to consume (mpc) for this economy is , and the multiplier for this economy is . suppose the government in this economy decides to decrease government purchases by $300 billion. the decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to . this decreases income yet again, causing a second change in consumption equal to . the total change in demand resulting from the initial change in government spending is .

How should the environmental effects be dealt with when evaluating this project? the environmental effects should be ignored since the plant is legal without mitigation. the environmental effects should be treated as a sunk cost and therefore ignored. if the utility mitigates for the environmental effects, the project is not acceptable. however, before the company chooses to do the project without mitigation, it needs to make sure that any costs of "ill will" for not mitigating for the environmental effects have been considered in the original analysis. the environmental effects should be treated as a remote possibility and should only be considered at the time in which they actually occur. the environmental effects if not mitigated would result in additional cash flows. therefore, since the plant is legal without mitigation, there are no benefits to performing a "no mitigation" analysis.