Final answer:
Fiscal policy, such as government spending or taxation, leads to a multiplied effect on national income due to the multiplier effect, which cycles increased spending through the economy, affecting both investment and consumption. Option B is correct.
Step-by-step explanation:
The use of the Keynesian cross demonstrates why fiscal policy has a multiplied effect on national income. Fiscal policy, such as government spending and taxation, influences aggregate demand and thereby affects investment and consumption. When the economy faces a recessionary gap, expansionary fiscal policy can be implemented to increase government spending directly, or reduce taxes, which stimulates consumption and investment. An increase in government spending shifts the aggregate expenditure function upward, leading to a multiplied effect on national income due to the multiplier effect.
This multiplier effect implies that any initial increase in spending will cycle through the economy multiple times, leading to a larger impact on the equilibrium level of real GDP than the initial amount spent. Therefore, an increase in government spending results in increased consumption and investment, which in turn has a ripple effect, further stimulating aggregate demand and, ultimately, national income.
The correct answer to why fiscal policy has a multiplied effect on national income is: B. Fiscal policy influences investment and consumption.