C = 26 + 0.75Y I g = 60 X = 24
M = 10
(Advanced analysis) The equations give information for a private open economy.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.The multiplier for the economy is
A)4.6.
B)3.33.
C)5.0.
D)4.0.

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) = 4.0.