If the MPS is 0.1 and the income tax rate is 0.33 the multiplier,k,is approximately
A)2.5.
B)2.0.
C)10.
D)3.

Question

Quizplus · Accepted Answer

The multiplier (k) is calculated as 1/(1 - MPC*(1 - tax rate)), where MPC is the Marginal Propensity to Consume. Given MPS (Marginal Propensity to Save) is 0.1, MPC = 1 - MPS = 0.9. With a tax rate of 0.33, the formula becomes 1/(1 - 0.9*(1 - 0.33)) = 1/(1 - 0.9*0.67) = 1/(1 - 0.603) = 1/0.397 ≈ 2.5.

If the MPS Is 0