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

b) Calculate expenditure multiplier

Answer 1

Marginal propensity to consume = Change in the consumer / Change in the income.

We will pick any two successive number for calculating that.

Old income 4400, new income 4500. Old consumption 4225, new consumption 4300.

Change in the income 4500 - 4400 = 100. Change in the consumption = 4300 - 4225 = 75.

75 / 100 = 0.75. So, the marginal propensity to consume in the economy is 0.75.  

After having the MPC we can calculate the expenditure multiplier = 1 / 1 - MPC   

= 1 / 1 - 0.75

= 1 / 0.25

= 4.

The expenditure multiplier in the economy is 4.