$$\begin{array} { | l | c | c | c | }
\hline & \text { Change in Income } & \begin{array} { c }
\text { Change in } \
\text { Consumption }
\end{array} & \text { Change in Saving } \
\hline \text { Assumed Increase in Investment } & \$ 20 & \$ & \$ 4.00 \
\hline \text { Second Round } & \$ & \$ 12.80 & \$ \
\hline \text { All Other Rounds } & \$ & \$ 51.20 & \$ \
\hline \text { Totals } & \$ & \$ & \$ 20.00 \
\hline
\end{array}$$ Refer to the given table, which illustrates the multiplier process. The change in income in round two will be
A) $4.
B) $16.
C) $20.
D) $24.

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 change in income in round two will be
A) $4.
B) $16.
C) $20.
D) $24.

Quizplus · Accepted Answer

The change in saving in the first round is $4.00, and the assumed increase in investment is also $20. Therefore, the multiplier is 5 ($20 divided by $4.00). In the second round, the change in consumption will be $12.80 ($64 total increase in income multiplied by 0.2 marginal propensity to consume), and the change in saving will be $0. Therefore, the total change in income in round two will be $12.80, which corresponds to choice (B).

Refer to the Given Table, Which Illustrates the Multiplier Process