calculate the multiplier for the following cases.\ncase\tmultiplier\nmps = 0.25\t4\nmpc = 5/6\t6\nmps =…
calculate the multiplier for the following cases.\ncase\tmultiplier\nmps = 0.25\t4\nmpc = 5/6\t6\nmps = 0.125\t8\nmpc = 6/7\t7\nc = $200 + 0.9y\t□
Answer
Explanation:
Step1: Identify MPC from consumption function
The consumption - function is $C = 200+0.9Y$. The marginal - propensity to consume (MPC) is the coefficient of $Y$. So, $MPC = 0.9$.
Step2: Use the multiplier formula
The multiplier formula is $k=\frac{1}{1 - MPC}$ or $k=\frac{1}{MPS}$ (since $MPS=1 - MPC$). Substituting $MPC = 0.9$ into the formula $k=\frac{1}{1 - MPC}$, we get $k=\frac{1}{1 - 0.9}$.
Step3: Calculate the multiplier
$k=\frac{1}{0.1}=10$.
Answer:
10