Assume there are no taxes or imports.The government estimates that between 2008 and 2009 disposable income decreased by $300 billion and consumption expenditure decreased by $180 billion.Based on these data,the multiplier equals

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Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC (marginal propensity to consume) is the change in consumption divided by the change in disposable income. Here, MPC = -180/-300 = 0.6. Thus, the multiplier is 1/(1-0.6) = 2.5.

Assume There Are No Taxes or Imports