The formula for the Keynesian spending multiplier is (MPC is the marginal propensity to consume, MPS is the marginal propensity to save)

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The Keynesian spending multiplier formula is 1/(1-MPC), which represents the amount by which gross domestic product (GDP) increases in response to an increase in government spending or investment. The MPC represents the portion of additional income that is spent rather than saved. Therefore, the larger the MPC, the larger the spending multiplier, as more of the additional income is spent and cycles through the economy. Choice A is the only option that accurately reflects the Keynesian spending multiplier formula.

The Formula for the Keynesian Spending Multiplier Is (MPC Is