Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 60 + 0.43Y,I = 150,G = 260,T = 0,X = 90,IM = 0.06Y.The value of the simple multiplier in this model is
A)0.37.
B)1.59.
C)2.04.
D)2.32.
E)2.70.

Question

Quizplus · Accepted Answer

The simple multiplier is calculated using the formula 1/(1 - MPC + MPM), where MPC is the marginal propensity to consume and MPM is the marginal propensity to import. From the given equations, MPC = 0.43 and MPM = 0.06. Thus, the multiplier = 1/(1 - 0.43 + 0.06) = 1/(1 - 0.37) = 1/0.63 = 1.59.

Consider a Simple Macro Model with a Constant Price Level