If the marginal propensity to consume is 0.65, the spending multiplier is
A) 1.33.
B) 1.54.
C) 2.86.
D) 4.

Name: If the marginal propensity to consume is 0.65, the spending multiplier is A) 1.33. B) 1.54. C) 2.86. D) 4.
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Question

Quizplus · Accepted Answer

The spending multiplier is equal to 1/(1-MPC), where MPC is the marginal propensity to consume. Using this formula, we get:
1/(1-0.65) = 1/0.35 = 2.86
Therefore, the spending multiplier is 2.86. The correct answer is C.

If the Marginal Propensity to Consume Is 0