Question

Income Or Output Y	Consumption Expenditure         C	Investment Expenditure       I	Government Expenditure          G	Net export Expenditure        NX
$4,000	3,925	100	100	25
4,100	4,000	100	100	25
4,200	4,075	100	100	25
4,300	4,150	100	100	25
4,400	4,225	100	100	25
4,500	4,300	100	100	25
4,600	4,375	100	100	25
4,700	4,450	100	100	25
4,800	4,525	100	100	25
4,900	4,600	100	100	25
5,000	4,675	100	100	25

2. Calculate MPC, MPS and the Multiplier if consumption expenditure increases by $4,250 as a result of increase in income from $40,000 to $45,000.

Answer 1

MPC = change in consumption / Change in income

Here change or increase in consumption = 4250

Change or increase in income = 45000 - 40,000 = 5000

MPC = 4250 /5000 = 0.85

MPS = 1- MPC = 1- 0.85

MPS = 0.15

Multiplier = 1/ MPS = 1/0.15 = 6.67