Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

For C = 80 + 0.8 y, the value of multiplier will be.

Options:

5

10

15

20

Correct Answer:

5

Explanation:

The correct answer is option (1) : 5

The multiplier can be calculated using the formula :

Multiplier = $\frac{1}{(1-MPC)}$

In the given consumption function C= 80 + 0.8y, the marginal propensity to consume (MPC) is 0.8 because the change in consumption (ΔC) with respect to a change in income (Δy) is 0.8.

So, the multiplier is :

Multiplier = $\frac{1}{(1-0.8)}=\frac{1}{0.2}=5$

The correct answer is not among the options you provided. The multiplier for this consumption function is 5.