Question

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

Answer 1

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

Answer 2

The consumer spending would be $383

The formula to compute Multiplier and Marginal Propensity to Consume (MPC)  :

= Multiplier = 1 / (1 - MPC)

where :

MPC = difference in consumption / difference in income

MPC = ΔC / ΔY

Consumption or Consumer Spending = C

Income or Yield = Y

We can now plug in the details in the formula

5 = 1 / (1 - MPC)

1 - MPC = 1 / 5

1 - MPC = 0.2

MPC = 1  - 0.2

MPC = 0.8

Now that we have MPC, the next step 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

X= 383

It therefore follow that when income is $510, consumer spending will be $383

Learn more about Multiplier and Marginal Propensity to Consume here : https://brainly.com/question/17930875