When money is spent on goods and services, those that receive the money also spend some of it. The people receiving some of the twice-spent money will spend some of that, and so on. Economists call this chain reaction the multiplier effect. In a hypothetical isolated community, the local government begins the process by spending D dollars. Suppose that each recipient of spent money spends and saves of the money that he or she receives. The values c and s are called the marginal propensity to consume and the marginal propensity to save and, of course, . The number k = 1/s is called the multiplier. What is the multiplier if the marginal propensity to consume is ?
A)3
B)6
C)2.5
D)7

Question

When money is spent on goods and services, those that receive the money also spend some of it. The people receiving some of the twice-spent money will spend some of that, and so on. Economists call this chain reaction the multiplier effect. In a hypothetical isolated community, the local government begins the process by spending D dollars. Suppose that each recipient of spent money spends  and saves  of the money that he or she receives. The values c and s are called the marginal propensity to consume and the marginal propensity to save and, of course,  . The number k = 1/s is called the multiplier. What is the multiplier if the marginal propensity to consume is  ?
A)3 
B)6 
C)2.5 
D)7

Quizplus · Accepted Answer

The Answer of When money is spent on goods and services, those that receive the money also spend some of it. The people receiving some of the twice-spent money will spend some of that, and so on. Economists call this chain reaction the multiplier effect. In a hypothetical isolated community, the local government begins the process by spending D dollars. Suppose that each recipient of spent money spends  and saves  of the money that he or she receives. The values c and s are called the marginal propensity to consume and the marginal propensity to save and, of course,  . The number k = 1/s is called the multiplier. What is the multiplier if the marginal propensity to consume is  ?
A)3 
B)6 
C)2.5 
D)7

When Money Is Spent on Goods and Services, Those That