Test Index

JAMB Economics 2012 Paper

Question : 23

Total: 49

What is the change in income?

Solution:

Concept:

The change in income is found using the investment multiplier, which depends on the marginal propensity to consume (MPC).

Explanation:

The investment multiplier is given by

k = \frac{1}{1 - MPC}

Given

MPC = 0.75

, compute

1 - MPC = 0.25

k = \frac{1}{0.25} = 4

The change in investment is

\Delta I = N2

million.

Therefore, change in income is

\Delta Y = k \times \Delta I = 4 \times 2

million

= N8

million.

Answer:

D. N8.0m

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