If the marginal propensity to consume is 0.5,what is the value of the expenditure multiplier?
A) 1.0
B) 1.5
C) 2.0
D) 0.5
E) 10.0

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated using the formula 1/(1-MPC), where MPC is the marginal propensity to consume. In this case, MPC is 0.5, which means the expenditure multiplier is 1/(1-0.5) = 2. Therefore, for every increase in autonomous expenditure (such as government spending or investment), the total increase in output will be twice as much.

If the Marginal Propensity to Consume Is 0