Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle?

A. 42

B. 3.6

C. 16.66

D. 36

d. 36

Explanation:

The computation of value will be recycled is shown below:-

Out of 100 expenditure changes 60 should return to buy.

Thus, the saving = 100 - 60

= 40%

and consumption is 60%.

The value recycled in the next round = First round purchase * Consumption ratio

= 60 * 60%

= 36

Therefor for computing the value will be recycled in the next round we simply multiply the first round purchase with consumption ratio.