JAMB Economics 2010 Paper

Concept:The government expenditure multiplier shows how much national income changes when government spending changes.Explanation:The formula for the expenditure multiplier is $\frac{1}{1 - MPC}$.Here, $MPC = 0.7$. Therefore, the multiplier is:$$\frac{1}{1 - 0.7} = \frac{1}{0.3} = \frac{10}{3}$$Government expenditure increased by $N150m$.Change in equilibrium national income = multiplier $\times$ change in government expenditure:$$\frac{10}{3} \times 150 = 500$$So, the equilibrium national income increases by $N500$ million.Answer:D. N 500 million