The letters Y,C,I g ,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars.
C = 26 + .75Y
I g = 60
X = 24
M = 10
-The multiplier for the above economy is:
A) 4.60.
B) 3.33.
C) 5.00.
D) 4.00.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, MPC is 0.75, so the multiplier is 1/(1-0.75) = 4.00.

The Letters Y,C,Ig,X,and M Stand for GDP,consumption,gross Investment,exports,and Imports Respectively

The Letters Y,C,I_g,X,and M Stand for GDP,consumption,gross Investment,exports,and Imports Respectively