Discussion
If consumption function is given by C = 200 + 0.75 Y, then the value of multiplier will be ...........
Answer: B
The multiplier is 4.
In \(C = 200 + 0.75Y\), the marginal propensity to consume is 0.75. The simple investment multiplier is:
\[ \begin{aligned} k &= \frac{1}{1 - MPC} = \frac{1}{1 - 0.75} \\ &= \frac{1}{0.25} = 4 \end{aligned} \]
Every extra rupee of investment raises income by 4 rupees. 3, 5 and 6 would correspond to MPCs of about 0.67, 0.8 and 0.83. The autonomous 200 affects the level of income, not the multiplier.
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