The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table.
Table 12.1-Income and consumption data
-Based on Table 12.1,what is the multiplier?
A) 0.75
B) 0.80
C) 4
D) 5

Question

The following table shows a hypothetical relationship between consumption and income.Answer the indicated question(s)on the basis of this table.
Table 12.1-Income and consumption data 
-Based on Table 12.1,what is the multiplier?
A) 0.75 
B) 0.80 
C) 4 
D) 5

Quizplus · Accepted Answer

The multiplier represents the amount by which a change in autonomous expenditure (like investment or government spending) leads to a larger change in overall output. It is calculated as 1/(1-MPC). Based on the given consumption and income data, the MPC is 0.8. Therefore, the multiplier is 1/(1-0.8) = 5. Choice C represents this value.

The Following Table Shows a Hypothetical Relationship Between Consumption and Income.Answer