If the marginal propensity to save is 0.25 in an economy with no imports or taxes, the multiplier equals
A) 0.25.
B) 0.75.
C) 4.
D) 1.33.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1 - marginal propensity to consume). If the marginal propensity to save is 0.25, then the marginal propensity to consume is 0.75 (1 - 0.25). Therefore, the multiplier is 1/(1 - 0.75) = 1/0.25 = 4.

If the Marginal Propensity to Save Is 0