Question

Starting from an autonomous expenditure increase of 10 with MPC = 0.8, the successive increments in output across rounds follow the sequence:

Options

• \[10,\ 10,\ 10,\ \ldots\]

• \[10,\ (0.8) \times 10,\ (0.8)^2 \times 10,\ \ldots\]

• \[10,\ 18,\ 26,\ \ldots\]

• \[10,\ 8,\ 6,\ 4,\ \ldots\]

Answer 1

Each round's increment equals the previous round's increment multiplied by the MPC (0.8). Hence output rises by 10 in the first round, \[(0.8) \times 10\] in the second, \[(0.8)^2 \times 10\] in the third, and so on, forming a decreasing geometric progression.