Refer to the information below.The multiplier in this economy is:
A)4
B)5
C)1.5.

Name: Refer to the information below.The multiplier in this economy is: A)4 B)5 C)1.5.
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Question

Refer to the information below.The multiplier in this economy is: 
A)4 
B)5 
C)1.5.

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume, which is the fraction of any additional income that is spent. From the given information, MPC can be calculated as (1/0.75)-1 = 0.33. Therefore, the multiplier is 1/(1-0.33) = 3.

Refer to the Information Below