Hey guys. Could i please have an explanation on how to do this question. I'm not sure. I dont even have the answer with me.
http://imgur.com/2E3YG
http://imgur.com/2E3YG
-
YOU can help the next generation of students in the community! Share your trial papers and notes on our Notes & Resources page
Multiple choice. Consumption function?? (1 Viewer)
- Thread starter akhilN3
- Start date
deswa1
Well-Known Member
- Joined
- Jul 12, 2011
- Messages
- 2,256
- Gender
- Male
- HSC
- 2012
Well between year 1 and 2, income increased by 150 but consumption increased by 90 so the marginal propensity to consume is 90/150=3/5. Therefore the MPS is 2/5 and the multiplier is 1/MPS=5/2
So an increase in investment by $40bn will have a $40x5/2 increase in national income -> $100bn increase -> $300bn (C)
So an increase in investment by $40bn will have a $40x5/2 increase in national income -> $100bn increase -> $300bn (C)