Homework Answers
Answer. (a) 8.0
Explanation: First we need to find marginal propensity to consume (MPC). It is the increase in consumption after one unit increase in income. So here MPC = (New consumption - Old consumption) / (New income - Old income) = (48750-40000)/(65000-55000) = 8750/10000 = 0.875. So this is MPC. Now expenditure mulitiplier will be 1/(1-MPC) = 1/(1-0.875) = 1/0.125 = 8
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