In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the multiplier is 3.33.

Question

Quizplus · Accepted Answer

The multiplier can be calculated as the change in output (or GDP) divided by the initial change in spending. In this case, the change in output is $1,000 (increase in disposable income from $1,000 to $2,000) and the change in spending is $700 (increase in consumption from $800 to $1,500). Therefore, the multiplier is 1,000/700=3.33, which is true according to the given information.

In an Economy with No Taxes and No Imports,disposable Income