Scenario 24-2.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 24-2.The multiplier for this economy is
A) 6.00.
B) 6.25.
C) 8.40
D) 9.00.

Question

Quizplus · Accepted Answer

The formula for calculating the multiplier is: 
Multiplier = 1 / (1 - Marginal Propensity to Consume)
where Marginal Propensity to Consume (MPC) = (Change in consumption spending / Change in income)

Using the given information, we can calculate the MPC as:
MPC = (5536 - 5200) / (8400 - 8000) = 336 / 400 = 0.84

So, the multiplier is:
Multiplier = 1 / (1 - 0.84) = 6.25

Therefore, the best choice is B) 6.25.