If the marginal propensity to save is \(0.4\) and consumption expenditure changes by \(\mathrm{N} 10\) million. the equilibrium level of income will change by ____________
A. N15.0 million B. N4.0 million C. N75.0 million D. N40.0 million
Correct Answer: D
Explanation
\(\frac{\Delta Y}{\Delta C}=k\) \(\Delta Y=\) change in equilibrium income level \(\Delta C=\) change in consumption expenditure. Multiplier \(=\frac{1}{M P S}\) \begin{aligned} \frac{\Delta Y}{10} &=\frac{1}{0.4} \\ \Delta Y &=\frac{10}{0.4} \\ &=\frac{100}{4}=25 \end{aligned}