C
Connolly
Member
Hi, I am wondering does anyone know an explanation to the below question...
Thanks in advance.
Thanks in advance.
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C
Connolly
Member
Also does anyone know where the multiplier comes from in this case?
Thanks.
F
freddie
Member
The first question is an old question. This formula (involving the cash to deposits ratio) is not now in the syllabus. So no need to worry!
The second one is another old question (as it involves disposable income, whereas the present syllabus uses total national income). Assuming the information is about consumption on domestic goods and national income, it can be explained as follows:
The formula for the multiplier, k = 1/(1-mpcd) The mpcd is the proportion of additional income that is spent on domestic goods, ie it is the gradient of the consumption function (on domestic goods). Here they tell us that when income increases by £6000, consumption on domestic goods increases by £1500, so the mpcd = 1500/6000 = 0.25, so k=1/(1-0.25) = 1/0.75 = 1.33.
It would be safer (and less worrying for you!) if you used more recent exam papers or ActEd materials that have made amendments for any changes in syllabus.