For C = 40 + 0.8y ; the value of multiplier is :
Answer & explanation
Correct answer: option 1
The correct answer is option (1) : 5
The multiplier (k) is calculated using the formula :
$k=\frac{1}{1-MPC}$
where MPC is the marginal propensity to consume.
In the given consumption function C = 40 + 0.8y, the marginal propensity to consume (MPC) is 0.8.
$k= \frac{1}{1-0.8}=\frac{1}{0.2}= 5 $