Economics Multiple Choice Question (1 Viewer)

[lpodtouch]

Hi guys!

I need a bit of help with Q. 18 of HSC 2014 M/C. Could someone please explain the working out behind the question? Thank you

 

[Crisium]

gg Economics

They should have worded the "all other things being equal" as "ceteris paribus" (The only definition I remember from prelim eco lel)

 

[turnerloos]

Answer should be A) $20 mil using multiplier effect formula. so find MPC = ∆C/∆Y = 40/50 = 0.8 Then use the multiplier formula k = 1/1-MPC = 1/1-0.8 = 5. So export income wouldve multiplied by 5 times. Since the given statement already includes the multiplier effect i.e. increase in exports lifted national income by $100mil, therefore u divide by 5 and u get $20mil... Please feel free to correct me if I'm wrong )