Scenario 16-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $5,200 when income is $8,000.
• Consumption spending is $5,536 when income is $8,400.
-Refer to Scenario 16-2. The multiplier for this economy is
A) 6.00.
B) 6.25.
C) 8.40
D) 9.00.

Question

Quizplus · Accepted Answer

The multiplier can be calculated as the change in output divided by the change in spending, which is (($5,536 - $5,200)/($8,400 - $8,000)) = $336/$400 = 0.84. To convert this to a multiplier, we take the reciprocal, which is approximately 1.19. Therefore, the multiplier is 1/(1 - 0.84) = 6.25.