In a certain economy, when income is $400, consumer spending is $350. The value
ID: 1209741 • Letter: I
Question
In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier economy is 3.125. It follows that, when income is $450, consumer spending is $384. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. $389.38 For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand. $389.38 For this economy, an initial impulse of $50 in consumer spending translates into a $ 156.25 increase in aggregate demand. $384. For this economy, an initial impulse of $50 in consumer spending translates into a $ 156.25 increase in aggregate demand. Take the following information as given for a small, imaginary economy. When income is $10,000, consumption spending is $6,500. When income is $11,000, consumption spending is $7,300. The marginal propensity to consume for this economy is 0.650. 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 0.664.Explanation / Answer
1 When Y=400, C=350
multiplier Y=450, consumption is $384
when multiplier=3.125, A $50 additional spending will translate into 3.125*50=$156.25 of income.hence option B
2. Option C
MPC=C/Y=6500/10,000=0.65
MPC=c/Y=7300/11000=.664