In a certain economy,when income is $500,consumer spending is $375.The value of the multiplier for this economy is 5.It follows that,when income is $510,consumer spending is
A)$381.67.
B)$378.
C)$383.
D)$383.33.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.8 (since the multiplier is 5, MPC = 1 - 1/5 = 0.8). Therefore, when income increases by $10, consumer spending increases by $10 * 0.8 = $8. Thus, new consumer spending is $375 + $8 = $383.

In a Certain Economy,when Income Is $500,consumer Spending Is $375