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Fact 11.5.2
An economy has a consumption function of C = 15 + 0.7Y , investment equal to 8, government expenditure equal to 12, exports equal to 20, and an import function of M = 0.2Y.
-Refer to Fact 11.5.2.What is the multiplier for this economy?
A)1
B)10
C)3.33
D)2
E)0.5

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1 - MPC + MPM), where MPC is the marginal propensity to consume (0.7) and MPM is the marginal propensity to import (0.2). Thus, the multiplier is 1/(1 - 0.7 + 0.2) = 1/0.5 = 2.

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