Answer to Question #132809 in Microeconomics for Faheem ali Mirani

Question

In a hypothetical economy, without taxes, the consumption(C) at different levels of real GDP (Y) is
given here under:
Real GDP Consumption (Rs in Billion)
(Y) (C)
3,000 1,500
5,000 3,000
Determine the size of MPC (Marginal propensity to consume), MPS (Marginal propensity to save) and multiplier

Answer 1

$MPC = \dfrac{ \Delta C} { \Delta Y} = \dfrac {3000-1500} {5000-3000} = 0.75$

$MPS = 1 - MPC = 1 - 0.75 = 0.25$

$Multiplier = {1 \above{1pt} 1- MPC} = {1 \above{1pt} 1- 0.75} = 4$