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 100c% and saves 100s% 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, c+s=1. The number k = 1/s is called the multiplier. What is the multiplier if the marginal propensity to consume is 90%?

Select the correct answer.

a. 4
b. 3
c. 6
d. 7
e. 10


e. 10

Mathematics

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A.  =   +   +  
B.  =    +   +  
C.  =    +   +  
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What will be an ideal response?

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A.
B.
C.
D.

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