FIGURE 23-5 Refer to Figure 23-5.Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right,as shown.The simple multiplier is ________ and the multiplier is ________.
A)6; 1.2
B)2.8; 1.2
C)4; 1.2
D)4; 2.8
E)4; 3.2

Question

FIGURE 23-5 Refer to Figure 23-5.Suppose that an increase in government purchases by 50 causes the AD curve to shift to the right,as shown.The simple multiplier is ________ and the multiplier is ________.
A)6; 1.2 
B)2.8; 1.2 
C)4; 1.2 
D)4; 2.8 
E)4; 3.2

Quizplus · Accepted Answer

The simple multiplier is 1/(1-MPC) = 1/(1-0.8) = 5. The multiplier is 1 + (MPC/(1-MPC)) = 1 + (0.8/0.2) = 1 + 4 = 5. Therefore, the correct choice is C.