If households save $0.20 of each additional dollar of increased income and spend the rest,the expenditure multiplier will be

Name: If households save $0.20 of each additional dollar of increased income and spend the rest,the expenditure multiplier will be
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Quizplus · Accepted Answer

The expenditure multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If households save $0.20, they spend $0.80, so MPC = 0.80. The multiplier is 1/(1-0.80) = 5.

If Households Save $0