$$\begin{array} { | l | c | c | c | }
\hline & \text { Change in Income } & \begin{array} { c }
\text { Change in } \
\text { Consumption }
\end{array} & \text { Change in Saving } \
\hline \text { Assumed Increase in Investment } & \$ 20 & \$ & \$ 4.00 \
\hline \text { Second Round } & \$ & \$ 12.80 & \$ \
\hline \text { All Other Rounds } & \$ & \$ 51.20 & \$ \
\hline \text { Totals } & \$ & \$ & \$ 20.00 \
\hline
\end{array}$$ Refer to the given table, which illustrates the multiplier process. The multiplier in this economy is
A) 2.
B) 4.
C) 5.
D) 10.

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 multiplier in this economy is
A) 2.
B) 4.
C) 5.
D) 10.

Quizplus · Accepted Answer

The multiplier is calculated as the ratio of the total change in income to the initial change in investment. Given the total change in income is \$80 (sum of the assumed increase in investment and the totals of changes in consumption and saving) and the initial change in investment is \$20, the multiplier is 80/20 = 4. However, the correct calculation based on the provided table should reflect the process of determining the multiplier through the marginal propensity to consume (MPC) or save (MPS), which isn't directly calculable from the given data. The mistake in the explanation indicates a misunderstanding of the table's data. The correct multiplier, based on the assumption that the total change in income equals the initial investment plus the total changes in consumption and saving, would indeed reflect the economy's overall response to investment. However, without clear values for the changes in consumption and saving in the table, the direct calculation of the multiplier from the table is not straightforward. The correct answer relies on understanding the multiplier concept and the relationship between investment, income, and changes in consumption and saving, which typically involves more detailed information than what is provided.

Refer to the Given Table, Which Illustrates the Multiplier Process