Supposed that each of the following rows represents the choice faced by policy makers given the current set of U. institutions and technology.
September 3, 2020
Assume the simple spending multiplier equals 10.
September 3, 2020

Suppose that Omar’s marginal utility for cups of coffee isconstant at 1.5 utils per cup no matter how many cups hedrinks. On the other hand, his marginal utility per doughnutis 10 for the first doughnut he eats, 9 for the second he eats,8 for the third he eats, and so on (that is, declining by 1 utilper additional doughnut). In addition, suppose that coffeecosts $1 per cup, doughnuts cost $1 each, and Omar has abudget that he can spend only on doughnuts, coffee, or both.How big would that budget have to be before he wouldspend a dollar buying a first cup of coffee

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