In an economy with no income taxes or imports, if the MPC is .75, the expenditure multiplier is
A) 0.25.
B) 0.33.
C) 0.50.
D) 4.00.
E) 3.00.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as 1/MPS, where MPS (Marginal Propensity to Save) is 1 - MPC (Marginal Propensity to Consume). Since the MPC is given to be 0.75, the MPS would be 0.25. Hence, the expenditure multiplier would be:

1/MPS = 1/0.25 = 4.00

Therefore, the correct choice is D) 4.00.

In an Economy with No Income Taxes or Imports, If