Question

In the round-by-round multiplier mechanism, the values of consumption, aggregate demand and output/in income in each round:

Options

• Grow in the same pattern each round

• Move in opposite directions to one another

• Show consumption always exceeding output

• Remain constant across all rounds

Answer 1

In every round, the increase in consumption equals the increase in aggregate demand, which equals the increase in output/income — each being a fixed multiple (the MPC) of the previous round's increment. All three columns therefore grow in the same pattern: 10, (0.8) × 10, (0.8)² × 10, …