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JAMB Economics 1994 Question 3

Question 3

National Income

If the marginal propensity to consume is 0.80 and the investment expenditure changes from N100 million to N140 million in a given economy, find the level of equilibrium in the given economy, using the formula K = 1/(1 − MPC) (K = Multiplier; MPC = Marginal Propensity to Consume)

  1. A.N20 million
  2. B.N40 million
  3. C.N80 million
  4. D.N200 million
Show the answer and explanation

Answer: D (N200 million)

Explanation

K = 1 ÷ (1 − 0.8) = 5. Investment rises by N40 million, so income rises by 5 × 40 = N200 million.