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JAMB Economics 2006 Question 1

Question 1

National Income

If the marginal propensity to consume is 0.6 and consumption expenditure changes by ₦10 million, the equilibrium level of income will change by

  1. A.₦4.0 million
  2. B.₦25.0 million
  3. C.₦2.5 million
  4. D.₦15.0 million
Show the answer and explanation

Answer: B (₦25.0 million)

Explanation

The multiplier is 1/(1 − MPC) = 1/0.4 = 2.5. So income changes by 2.5 × ₦10 million = ₦25 million.