If a $100 billion increase in consumption spending creates $100 billion of new income in the first round of the multiplier process and $75 billion in the second round, the multiplier in the economy is 4.

Question

Quizplus · Accepted Answer

The multiplier is calculated as the change in income divided by the change in spending. In this case, the change in income is $100 billion + $75 billion = $175 billion, and the change in spending is $100 billion. Therefore, the multiplier is $175 billion / $100 billion = 1.75.

If a $100 Billion Increase in Consumption Spending Creates $100