$$\begin{array} { | l | c | c | c | }
\hline & \text { Change in Income } & \begin{array} { c }
\text { Change in } \
\text { Consumption }
\end{array} & \text { Change in Saving } \
\hline \text { Assumed Increase in Investment } & \$ 20 & \$ & \$ 4.00 \
\hline \text { Second Round } & \$ & \$ 12.80 & \$ \
\hline \text { All Other Rounds } & \$ & \$ 51.20 & \$ \
\hline \text { Totals } & \$ & \$ & \$ 20.00 \
\hline
\end{array}$$ Refer to the given table, which illustrates the multiplier process. The marginal propensity to save is
A) 0.5.
B) 0.25.
C) 0.2.
D) 0.1.

Question

$$\begin{array} { | l | c | c | c | } 
\hline & \text { Change in Income } & \begin{array} { c } 
\text { Change in } \
\text { Consumption }
\end{array} & \text { Change in Saving } \
\hline \text { Assumed Increase in Investment } & \$ 20 & \$ & \$ 4.00 \
\hline \text { Second Round } & \$ & \$ 12.80 & \$ \
\hline \text { All Other Rounds } & \$ & \$ 51.20 & \$ \
\hline \text { Totals } & \$ & \$ & \$ 20.00 \
\hline
\end{array}$$ Refer to the given table, which illustrates the multiplier process. The marginal propensity to save is
A) 0.5.
B) 0.25.
C) 0.2.
D) 0.1.

Quizplus · Accepted Answer

The multiplier process can be calculated by dividing the total change in income by the initial change in investment. In this case, the initial change in investment is $20 and the total change in saving is $20, so the total change in income is $100. Therefore, the multiplier process is 5 ($100/$20). The marginal propensity to save can be calculated as 1/1+MPC, where MPC is the marginal propensity to consume. Solving for MPC, we get 0.2, which means the answer is C.

Refer to the Given Table, Which Illustrates the Multiplier Process