(Advanced analysis)Assume the consumption schedule for a private closed economy is C = 40 + .75Y,where C is consumption and Y is gross domestic product.The multiplier for this economy is:
A) 3.
B) 4.
C) 5.
D) 10.

Question

Quizplus · Accepted Answer

The formula for the multiplier is 1/(1-MPC), where MPC is the marginal propensity to consume. In this case, MPC is 0.75, so the multiplier would be 1/(1-0.75) = 4. Therefore, choice B is the correct answer.

(Advanced Analysis)Assume the Consumption Schedule for a Private Closed Economy