The correct answer is Option (4) → (B), (C), (D), (A)
The multiplier process begins with an initial increase in investment, which leads to multiple rounds of income generation and consumption. The correct sequence is:
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(B) Increase in investment. The multiplier process starts with an autonomous increase in investment, such as the government building infrastructure or private firms investing in capital goods.This initial investment injects new money into the economy, creating income for others (like wages for workers, payments to suppliers, etc.).
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(C) Rise in aggregate demand in each round. The increased investment raises aggregate demand because more people now have money to spend. As demand for goods and services rises, firms produce more to meet that demand. This leads to further income generation, not just from the initial round but from every additional round of spending.
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(D) Generation of additional income. With firms producing more and hiring more workers, additional income is generated in the economy. This additional income is greater than the initial investment, due to the multiple rounds of re-spending.
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(A) Increase in income and consumption. The people who earn this additional income spend a portion of it (based on their marginal propensity to consume or MPC). This induces further consumption, which leads to more income and employment in subsequent rounds.
This cycle continues, causing a multiplied effect on income. |
