Consumption function : C = 800 + 0.75Yd
Income : 1800
Investment : 500
Net export : 756
Government expenditure : 200
Tax : 200
Calculate the following value:
(i) Expenditure multiplier; (3 marks)
(ii) Total consumption; (3 marks)
(iii) Equilibrium level of income.
(I) Expenditure multiplier
MPS= 0.75
MPC= 0.25
Expenditure multiplier=1.33
(ii) Total consumption
C= 800+ 0.75(1800)
C = 2,150
(iii) Equilibrium level of income.
Y = C + I + G, where; Y is aggregate income,
C is consumption,
I is investment expenditure, and
G is government expenditure
therefore; 3456= 1800+ 500+ 756+200+200
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