Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the multiplier in this economy?
A) 5
B) 2
C) 0.8
D) 0.2

Name: Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the multiplier in this economy? A) 5 B) 2 C) 0.8 D) 0.2
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Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, MPC = 0.8, so the multiplier = 1/(1-0.8) = 5.

Suppose the Consumption Function Is Given by the Equation C