Question

what will be the value of multiplier if entire additional income is converted into additional consumption?​

Answer 1

saving function for an economy is as S=-40+0.4Y, calculate savings at income level (y)=100. so change in savings is 0 because change in consumption = change in income.... hence MPC = 1 and MPS = 0... so multiplier will be 1/0 ie infinity...

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Answer 2

if entire additional income is converted into additional consumption then MPC is equals to 1 therefore the value of multiplier will be infinity ...

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