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5 August, 19:33

In a certain economy, when income is $500, consumer spending is $375. the value of the multiplier for this economy is 5. it follows that, when income is $510, consumer spending is

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  1. 5 August, 19:54
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    First, we must know the formula for Multiplier and Marginal Propensity to Consume (MPC).

    Multiplier = 1 / (1 - MPC)

    MPC = difference in consumption / difference in income

    MPC = ΔC / ΔY

    Consumption or Consumer Spending = C

    Income or Yield = Y

    Now, let's start the formula.

    5 = 1 / (1 - MPC)

    1 - MPC = 1 / 5

    1 - MPC = 0.2

    MPC = 1 - 0.2 = 0.8

    After we got the MPC, the next one is to find the consumer spending (x).

    MPC = (x - 375) / (510 - 500)

    0.8 = (x - 375) / 10

    0.8 * 10 = x - 375

    8 = x - 375

    x = 8 + 375 = 383
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