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

  • A 5
  • B 10
  • C 4
  • D 2

The correct answer is A. 5

Given Y = C + I and C = bY where b = 0.8, to find the multiplier, we work through the formula as follows:

First, substitute C into the original equation:

Y = bY + I

This gives us:

Y - bY = I

Solving for \(Y\) yields:

Y(1 - b) = I

Which simplifies to:
\(Y = \frac{I}{1 - b}\)

The multiplier is the coefficient of \(I\) in this equation, which is \(\frac{1}{1 - b}\).

Substituting b = 0.8:

Multiplier = \(\frac{1}{1 - 0.8} = \frac{1}{0.2} = 5\)

So, the multiplier is 5.

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