An estimate of the MPC in the U.S. is 0.80.
Paul Krugman, the 2008 Nobel Prize winner in economics, stated, "... you'd be hard pressed to argu an overall multiplier as high as 2." HYPERLINK "http://www.nytimes.com/" (www.nytimes.com, 11/10/2008)
What factors could explain the difference between the MPC and Krugman's estimate of the multipli

Question

Quizplus · Accepted Answer

Krugman's estimate of the multiplier is lower than the MPC because it takes into account leakages in the economy such as imports and taxes. A higher MPC would mean that a larger proportion of additional income is spent, leading to a larger multiplier effect. However, Krugman's estimate suggests that some of this spending may be offset by leakages such as imports, which reduce the impact of the multiplier. Taxes also reduce the amount of additional income that can be spent, further dampening the multiplier effect. Therefore, the best choice is B, which includes both imports and taxes as factors that could affect the multiplier.

An Estimate of the MPC in the U