The following table illustrates the multiplier process in a private closed economy: Refer to the above table.The multiplier in this economy is:
A)2
B)4
C)5
D)10

Question

The following table illustrates the multiplier process in a private closed economy:  Refer to the above table.The multiplier in this economy is:
A)2 
B)4 
C)5 
D)10

Quizplus · Accepted Answer

The multiplier can be calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. In this case, MPC is 0.8 (as given in the table), so the multiplier is 1/(1-0.8)=5. Therefore, for every initial increase in spending of $1, total output will increase by $5.

The Following Table Illustrates the Multiplier Process in a Private