In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is
A)$60.25.
B)$60.75.
C)$61.33.
D)$64.00.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) can be calculated using the multiplier formula: Multiplier = 1/(1-MPC). Given the multiplier is 4, MPC = 0.75. Therefore, when income increases by $1 (from $100 to $101), consumer spending increases by $0.75 (0.75 * $1), making it $60.75.

In a Certain Economy, When Income Is $100, Consumer Spending