In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is
A)$151.25.
B)$166.75.
C)$170.20.
D)$175.00.

Question

Quizplus · Accepted Answer

To find out consumer spending when income is $230, we can use the income-expenditure equation with the multiplier:

Y = C + I
where Y is income, C is consumer spending, and I is investment.

We know that:

Y = $200 (initial income)
C = $145 (initial consumer spending)
Multiplier = 6.25

Using the multiplier, we can find out the total spending (C + I) when income is $200:

C + I = Multiplier x Y
C + I = 6.25 x $200
C + I = $1250

We know that investment is zero (since it's not given), so we can find out the consumer spending when income is $230 by rearranging the equation:

Y = C + I
C = Y - I

Substituting the values of Y and I, we get:

C = $230 - 0.8($230)
C = $170.20

Therefore, the answer is C) $170.20.

In a Certain Economy, When Income Is $200, Consumer Spending