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

Question

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

Quizplus · Accepted Answer

The multiplier refers to the amount of increase in total output that results from an increase in spending or investment. It is calculated by dividing the change in output by the change in spending. In this case, the multiplier is not given explicitly, so we need to use the information provided in the question to calculate it. Since we know that the marginal propensity to consume (MPC) is 0.75, we can use the formula: multiplier = 1 / (1 - MPC) = 1 / (1 - 0.75) = 4. Therefore, the correct answer is D, with a multiplier of 4.

Refer to the Information Below