If there are no taxes or imports and MPC = 0.75, the multiplier equals
A) 4.0.
B) 0.25.
C) 1.33.
D) 6.0.

Name: If there are no taxes or imports and MPC = 0.75, the multiplier equals A) 4.0. B) 0.25. C) 1.33. D) 6.0.
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Question

Quizplus · Accepted Answer

When there are no taxes or imports, the equation for the multiplier is 1/MPC, where MPC is the marginal propensity to consume. In this case, MPC is given as 0.75, so the multiplier equals 1/0.75, which simplifies to 4.0. Thus, for every $1 increase in spending, output will increase by $4.

If There Are No Taxes or Imports and MPC =