Question

In the basic Keynesian model of income determination, calculate the expenditure multiplier, given the following consumption function:

C = 200 + 0.50Y

Answer 1

Given that,

C = 200 + 0.50Y

Expenditure Multiplier = $\frac{1}{1-MPC}$ ,

MPC = 0.50

$\therefore$ Multiplier = $\frac{1}{1-0.50}$

=$\frac{1}{0.50}$

= 2