Bayou Sans Espoir, LA, has been experiencing a mini-recession

Bayou Sans Espoir, LA, has been experiencing a mini-recession because of the significant decline in crude oil prices and cuts in state subsidies to its crawfish packing plant. As a result of falling oil prices, the oil companies operating in Bayou Sans Espoir have reduced investment spending in the area by $8 mil; Cajun Crawfish, the largest crawfish packing operation, has reduced local investment by $500,000.

• If the local marginal propensity to consume is 0.75, by how much has decreased investment spending reduced local gross domestic product and income?
• The State of Louisiana has announced that it will cut 800 families in Bayou San Espoir from the state welfare rolls as part of its overall cuts to its cash assistance program. It is estimated that the total annual reduction in transfer payments to Bayou Sans Espoir residents will amount to $3 mil. By how much will local GDP be reduced by this reduction in transfer payments?