An estimate of the MPC in the U.S. is 0.90. Paul Krugman, the 2008 Nobel Prize winner in economics, stated, "... you'd be hard pressed to argue for an overall multiplier as high as 2."
Www)nytimes.com, 11/10/2008
What factors could explain the difference between the MPC and Krugman's estimate of the multiplier?

Question

Quizplus · Accepted Answer

The difference between the marginal propensity to consume (MPC) and the multiplier can be explained by factors that do not directly contribute to domestic consumption or income, such as imports and taxes. Imports represent spending that does not contribute to domestic income, and taxes reduce disposable income, thereby affecting the overall multiplier.

An Estimate of the MPC in the U