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In a certain economy, when income is $200, consumer spending is $145. The value of the multiplier for this economy is 6.25. It follows that, when income is $230, consumer spending is_____________.

A. $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.
B. $166.75. For this economy, an initial impulse of $10 in consumer spending translates into a $66.75 increase in aggregate demand.
D. $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand..
C. $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $70.20 increase in aggregate demand.

Respuesta :

hyderali230

Answer:

D. $170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand..

Explanation:

Marginal propensity to consume means the increased in the amount of goods and services which an person consumes with increase in income.

Marginal propensity to save  = MPS =

Marginal propensity to consume  = MPC =

Multiplier = 1 / MPS

6.25 = 1 / MPS

MPS = 1 / 6.25

MPS = 0.16

As we know

Marginal propensity to consume + Marginal propensity to save = 1

MPC = 1 - MPS

MPC = 1 - 0.16

MPC = 0.84

Consumer Spending = Spending + MPC ( Increase in income)

Consumer Spending = $145 + 0.84 x ( 230 - 200 ) = $170.2

Increase in aggregate Demand = 6.25 x $10 =$ 62.50

C.

$170.20. For this economy, an initial impulse of $10 in consumer spending translates into a $62.50 increase in aggregate demand.

  • The calculation is as follows"

Multiplier = 1 ÷ MPS
6.25 =1 ÷MPS
MPS = 1 ÷ 6.25
MPS =0.16
Now

MPC = 1- MPS
= 1- 0.16
=0.84
Total increase in spending when income increases from 200 to 230

= MPC × change in income
=0.84 × 30
=25.2

Now

New spending = 145 +25.2
=170.20

An initial impulse of $10 in consumer spending translates into a increase in aggregate demand

= Multiplier × change in consumption by $10
=6.25 × 10
=$62.50

Learn more: https://brainly.com/question/10813422?referrer=searchResults

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