In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 500,the multiplier is -4.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If consumption decreases by $1,500 when disposable income decreases by $2,000, the MPC is 0.75. Therefore, the multiplier is 1/(1-0.75) = 4, not -4.

In an Economy with No Taxes or Imports,if Disposable Income