If the marginal propensity to save is 0.2, the value of the spending multiplier will be
A) 0.8.
B) 1.25.
C) 5.
D) 8.

Name: If the marginal propensity to save is 0.2, the value of the spending multiplier will be A) 0.8. B) 1.25. C) 5. D) 8.
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Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). If the marginal propensity to save (MPS) is 0.2, then the marginal propensity to consume (MPC) is 1 - 0.2 = 0.8. Therefore, the spending multiplier is 1/(1-0.8) = 1/0.2 = 5.

If the Marginal Propensity to Save Is 0