The multiplier for changes in government spending is calculated as
A)MPC.
B)1 - MPC.
C)1/MPC.
D)1/(1 - MPC).

Question

Quizplus · Accepted Answer

The multiplier for changes in government spending is calculated as 1/(1 - MPC), where MPC is the marginal propensity to consume. This is because when the government increases its spending, it injects money into the economy, which leads to an increase in consumption and investment spending, and in turn, further increases in aggregate demand. The multiplier captures this ripple effect of government spending through the economy. A higher MPC leads to a higher multiplier, as a larger fraction of the money injected into the economy is spent on goods and services, rather than saved.

The Multiplier for Changes in Government Spending Is Calculated as