Answer to Question #124268 in Macroeconomics for Joseph Appiah

Question

a. In a given economy, the following hold true.
1.There are only two sectors-household and business sectors operating in the economy.
2. The percentage of every extra income which goes into consumption is 80%.
Given that an initial amount of 1000 currency units is introduced as investment in the economy. Draw up a table which tracks successive expenditure, income consumption and savings in the economy, up to the sixth round assuming the initial injection kicks in a multiplier process. (10 Marks)
b. Using your table, calculate the total amount of income and consumption and deduce the value of the national income multiplier. (10 Marks)

Answer 1

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