Question

If the initial increase in autonomous expenditure is 10 and the MPC is 0.8, the total increase in equilibrium income is:

Options

• 18

• 8

• 10

• 50

Answer 1

The multiplier with MPC = 0.8 is \[K=\frac{1}{1-0.8}=5\]. Therefore \[\Delta Y = K \times \Delta \bar{A} = 5 \times 10 = 50\], which can also be obtained as the sum of the series \[\frac{10}{1-0.8}=\frac{10}{0.2}=50\].