Assume the saving schedule for a private closed economy is S = -20 + 0.2Y, where S is saving and Y is gross domestic product.The multiplier for this economy:
A)is 3.
B)is 4.
C)is 5.
D)cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is 0.2, so the marginal propensity to consume (MPC) is 1 - 0.2 = 0.8. The multiplier is 1/(1-MPC) = 1/0.2 = 5.

Assume the Saving Schedule for a Private Closed Economy Is