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g n a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is a. $60.25. b. $60.75. c. $61.33. d. $64.00.

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Answer:

The answer is option (b) $60.75

Explanation:

Solution

Given that

A certain economy, Income is =$100

Consumer spending is =$60

The value of multiplier is =4

Now we need to know when the income is $101, consumer spending, the customer spending will be what?

Now,

Multiplier (k)= 1/1-MPC (marginal propensity to consume)

4=1/1-MPC

Thus

MPC= 1-1/4

MPC=3/4

MPC=.75

So,

MPC= Change in consumption/change in income.

.75=Change in C/101-100

Change in C=.75*1

Change in C=.75

Hence

The new consumption =60+.75=60.75

Therefore, when the income is $101, the consumer spending is $60.75

Parrain

Based on the income and the amount of money spent from it, the consumer spending at that amount will be b. $60.75

The question can be answered with the Marginal Propensity to Consume (MPC) which is calculated as:

Multiplier = 1 / (1 - MPC)

4 = 1 / (1 - MPC)

MPC = 0.75

If the income is $101, the amount that will be spent is:

= Income + (Increase in income x Marginal Propensity to Consume)

= 100 + (1 x 0.75)

= $60.75

In conclusion, $60.75 will be the consumer spending.

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