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JAMB Economics 2004 Question 2

Question 2

National Income

Given that Y = C + I and C = bY where b = 0.8, what is the multiplier?

  1. A.5
  2. B.10
  3. C.4
  4. D.2
Show the answer and explanation

Answer: A (5)

Explanation

b is the marginal propensity to consume. Multiplier = 1/(1 − b) = 1/(1 − 0.8) = 1/0.2 = 5.