If C_y = .8, t = .2, IM_y = .1, the value of the multiplier would be A) .54. B) .46. C) 2.174. D) 1.852.

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Quizplus · Accepted Answer

The multiplier is calculated using the formula 1 / (1 - MPC), where MPC is the marginal propensity to consume. Given that C_y = .8 and IM_y = .1, the marginal propensity to save (MPS) is 1 - MPC. Therefore, MPC = 1 - IM_y = 1 - .1 = .9. Substituting into the formula gives 1 / (1 - .9) = 1 / .1 = 10. However, given the options do not directly match this calculation, it appears there might be a misunderstanding in the interpretation of the symbols or a mistake in the calculation process based on the provided options. The correct interpretation based on the given options and assuming a mistake in the initial calculation would be to find the multiplier effect, which is typically calculated as 1 / (1 - MPC) or 1 / MPS. Given the values, if we consider t = .2 as the tax rate and adjust our calculation for the multiplier considering taxes and imports, the formula might adjust, but without a clear formula linking the given variables to the options, option C is chosen based on the need for clarification and the typical approach to calculating multipliers in economics.

If Cy =

If C_y =