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JAMB Economics 2002 Question 16

Question 16

National Income

In a closed economy, the marginal propensity to consume is 0.6 and the average propensity to consume is 0.8. The value of the multiplier is

  1. A.2.5
  2. B.2.6
  3. C.2.7
  4. D.2.4
Show the answer and explanation

Answer: A (2.5)

Explanation

The multiplier uses the marginal propensity: k = 1/(1 − MPC) = 1/(1 − 0.6) = 1/0.4 = 2.5. The APC is not needed.