If the consumption function is C = 120 +_.8(Y-T)in the basic Keynesian model,then in the government spending multiplier is:
A)5.
B)4.
C)1.25.
D).8

Question

Quizplus · Accepted Answer

The government spending multiplier in the basic Keynesian model is calculated as 1/(1 - MPC), where MPC is the marginal propensity to consume. Given the consumption function C = 120 + .8(Y-T), the MPC is .8. Therefore, the government spending multiplier is 1/(1 - .8) = 1/.2 = 5.

If the Consumption Function Is C = 120 +_