Practicing Success
For C = 80 + 0.8 y, the value of multiplier will be. |
5 10 15 20 |
5 |
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. |