30. Which statement about the multiplier is correct? A. If a $20 billion increas

Question

30. Which statement about the multiplier is correct? A. If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5. B. If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4. C. If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5. D. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4.

Explanation / Answer

D. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4

as we know that Multiplier 4 means, reserve ratio of =1/4=25%

so in first round = $80 billion

second=80*(1-25%)=$60 billion

other options are wrong

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