The MagicSoft software company has a proposal to the city council of Alva, Florida, to relocate there. The proposal claims that the company will generate $3.3 million for the local economy by the $1 million in salaries that will be paid. The city council estimates that 70% of the salaries will be spent in the local community and 70% of that money will again be spent in the community, and so on.What is the correct estimate of the amount generated to the local economy?
The $1 million in salaries is the initial amount entering the local economy. Each round, 70% of the previous amount is spent locally, so the total is $1 million + $0.7 million + $0.49 million + … . This geometric series totals $1 million ÷ (1 − 0.70) = about $3.3 million, so the correct estimate is $3.3 million.
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