An estimate of the MPC in the U.S. is 0.90.
Paul Krugman, the 2008 Nobel Prize winner in economics, stated, ʺ... youʹd be hard pressed to argue for an overall multiplier as high as 2.ʺ
What factors could explain the difference between the MPC and Krugmanʹs estimate of the multiplier?

Question

Quizplus · Accepted Answer

The difference between MPC (0.90) and Krugman's estimate of the multiplier (2) could be due to the effect of imports and taxes. The multiplier effect of changes in government spending or investment is reduced by leakage through imports or increased savings due to higher taxes, thus resulting in a lower multiplier.

An Estimate of the MPC in the U