**Consumption Equation and Multiplier Calculation**In this exercise, we are given the following equation to describe the consumption function:\[ C = 20 + 0.9Y \]Where:- $ C $ represents Consumption- $ Y $ is disposable income, which is given as $800 billion**Question:**What is the Multiplier?**Options:**a) 90 b) 0.1 c) 10 d) 20 **Explanation:**- To find the multiplier in macroeconomics, we use the formula: \[ \text{Multiplier} = \frac{1}{1 - \text{MPC}} \] where MPC is the marginal propensity to consume. Here, the MPC is 0.9 (from the equation $ 0.9Y $).- Using the formula: \[ \text{Multiplier} = \frac{1}{1 - 0.9} = \frac{1}{0.1} = 10 \]Therefore, the correct answer is option c) 10.

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If C = 20 + 0.9Y C= Consumption Y= disposable income $800 billion What is the Multipler? 90 601 c 10 a 20

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

**Consumption Equation and Multiplier Calculation**

In this exercise, we are given the following equation to describe the consumption function:

\[ C = 20 + 0.9Y \]

Where:
- $ C $ represents Consumption
- $ Y $ is disposable income, which is given as $800 billion

**Question:**
What is the Multiplier?

**Options:**
a) 90
b) 0.1
c) 10
d) 20

**Explanation:**
- To find the multiplier in macroeconomics, we use the formula:
\[ \text{Multiplier} = \frac{1}{1 - \text{MPC}} \]
where MPC is the marginal propensity to consume. Here, the MPC is 0.9 (from the equation $ 0.9Y $).

- Using the formula:
\[ \text{Multiplier} = \frac{1}{1 - 0.9} = \frac{1}{0.1} = 10 \]

Therefore, the correct answer is option c) 10.

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