MPC = dC/dY , and MPC is the multiplier (1/[1-c]). correct?

im confused, please help me out here.

MPC = dC/dY , = 1 / (1-c) , and it's known as the multiplier.
C = Co + cY, and yet the small c is known as 1/(1-c). can someone sum it up for me? thanks

Answer:
Yes MPC=ΔC/ΔY or the change in Consumption over the change in disposable income.

And yes that is a multiplier but let's rewrite it a little bit.

M=(1/1-MPC)

It can be a multiplier for any aspect of GDP except for Tax
Ex. ΔY=ΔG*M
This would show how much government spending would have to change to have the national income change.

The formula C=Co + c Y is the Consumption function. Let rewrite it a little bit differently.

C=MPC*Y +a

a the autonomous consumption ( the amount you spend that doesn't depend on Yd i.e. food [you gotta eat no matter what])
MPC (you know)
Y (disposable income)
C is consumption.

If you know your algebra then this should look familiar. Say y=mx+b. The consumption function is just a line that you can find for any given Y and MPC, you can see how much people will spend.
dC/dY=c
1/(1-c) is the multiplier of S as S=I ex post.
Y=C + S
Y-cY= S
Y(1-c)= S
Y= S/(1-c)
dY/dS=1/(1-c)
Co is a constant.

The answers post by the user, for information only, FunQA.com does not guarantee the right.



More Questions and Answers:
  • Over the years, has the importance of the AIRC increased or decreased?
  • Aimed at accelerating industrial & agricultural progress ('walking on two legs') it failed miserably; which mo
  • What is Index of terms of Trade?
  • Which EU country is the most vocal and most regretful about adopting the euro currency?
  • How does monopoly compare with pure competition in terms of price output and efficiency?
  • Why does interest rate go up when inflation goes up?
  • Is climate a factor in a country's development?
  • If the dollar appreciated against the Jap. yen, what would you expect to happen to U.S. net exports with Japan
  • Which countries are developed economy?