Homework Answers
There is typographical error in the equation
It should have been C = 500 + 0.8Y
500 is the auntonomous consumption level , not dependent on the level of income.
0.8Y is the additional consumption for change in income level
0.8 represents the MPC rate . The rate at which consumption increase when income level increases.
Multiplier is the change in income when there is a change in demand.
Formula for multiplier = 1/(1-MPC) = 1/(1-0.8) = 1/0.2 = 5
Answer a) 5
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How do you solve this? I’m confused
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