Question

How much will $200 in new spending change equilibrium income if the marginal propensity to consume is 0.8

Answer 1

Answer: $1,000

Step-by-step explanation:

The change in equilibrium income will depend on the multiplier which is calculated as;

= 1/ ( 1 - MPC)

= 1 / ( 1 - 0.8)

= 5

Equilibrium income will increase by;

= Change in spending * Multiplier

= 200 * 5

= $1,000