Mc Q (1 Viewer)

[TastesGoodBut]

Other things being equal, what will be the resulting increase in income for an economy that has a marginal propensity to consume of 0.6, if investment increases by $10 million?

A $6 million
B $10 million
C $25 million
D $60 million










now the answer is C, but how does one get that answer?

THanks!

 

[Newbie]

1/1-MPC times 10 million

 

[symo]

k = 1/MPS = 1/0.4 =2.5
change in income = k x change in injection = 25m c)

 

[jumentous]

multiplier = 1/MPS
MPS = 1 - MPC
= 1 - 0.6 = 0.4
multi = 1 / 0.4 = 2.5
increased injections is 10 * multi of 2.5 is 25 mil

 

[Newbie]

newbie wins the answer race!

 

[TastesGoodBut]

go high! =P