You are given the following information about the Australian economy: consumption function of C
= 15 + 0.7Y, investment equal to 8, government expenditure equal to 12, exports equal to 20, and an import function of M = 0.2Y. What is the multiplier for this economy?
A)0.5
B)3.3
C)1
D)2

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC+MPM), where MPC is the marginal propensity to consume (0.7) and MPM is the marginal propensity to import (0.2). Thus, the multiplier is 1/(1-0.7+0.2) = 1/0.5 = 2.

You Are Given the Following Information About the Australian Economy