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Fact 27.3.1
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5 and real GDP is $200 billion. Businesses increase investment by $2 billion.
-Consider Fact 27.3.1. The multiplier is
A)0.5.
B)2.0.
C)2.5.
D)0.75
E)0.8.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC). With an MPC of 0.5, the multiplier is 1/(1-0.5) = 2.0.

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