In an economy, the aggregate demand function is given by $AD=80+ 0.75 Y$, What will be the value of investment multiplier?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 4
Multiplier (K)= 1 / (1 - MPC)
From the given aggregate demand function $AD=80+ 0.75 Y$, the MPC is the coefficient of Y.
Thus, MPC (Marginal Propensity to Consume) = 0.75
k =1 / (1 - 0.75 )
= 1 / 0.25
= 4