Question

In: Economics

Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and Disposable Income is...

Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and Disposable Income is National Income minus Net Taxes. In this case, the government spending multiplier equals.

Group of answer choices

a) -4 (negative 4).

b) 0.75

c) 4/3.

d) 4 (positive 4).

Solutions

Expert Solution

(b) MPC = 0.75

Multiplier = 1/ (1 - MPC)

= 1/ (1 - 0.75)

= 1/0.25

= 4

D is right option

Rahul Sunny answered 2 years ago
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