Question

If C= 450+0.5 Yd la= 275 billion Ga= 875 billion (X-M)a= - 50 billion, calculate the multiplier for this economy. Show method -

Answer 1

Multiplier = 2

Step-by-step explanation:

Below is the calculation of multiplier:

Given, C = 450 + 0.5Yd

la = 275

Ga = 875

X-M = -50 billion

Plug these values in the below formula:

AD = C + Ia + Ga + ( X - M )a

Y = 450 + 0.5Y + 275 + 875 + 50

0.5Y = 1650

"A" is the autonomous expenditure.

Thus, A = 1650

0.5Y = A

Multiplier= Change in Y/ Change A

Change in Y/ Change A =1/0.5

Change in Y/ Change A =2

Thus, Multiplier = 2