Consider a no government open economy with multiplier as 2.5 and marginal propensity to import as 0.2. Therefore, MPC is:
A) 0.2.
B) 0.6.
C) 0.75.
D) 0.8.

Name: Consider a no government open economy with multiplier as 2.5 and marginal propensity to import as 0.2. Therefore, MPC is: A) 0.2. B) 0.6. C) 0.75. D) 0.8.
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Question

Quizplus · Accepted Answer

The multiplier (k) is given by 1/(1 - MPC + MPM). Given k = 2.5 and MPM = 0.2, solve 2.5 = 1/(1 - MPC + 0.2) to find MPC = 0.8.

Consider a No Government Open Economy with Multiplier as 2