Suppose that the marginal propensity to save (MPS)equals 0.8. The value of the multiplier would be
A)0.8.
B)1.25.
C)0.2.
D)5.0.

Question

Quizplus · Accepted Answer

The value of the multiplier equals 1/(1-MPC), where MPC is the marginal propensity to consume. Since MPS + MPC = 1, we can calculate MPC as 1 - MPS, which equals 0.2 in this case. Therefore, the value of the multiplier is 1/(1-0.2) = 1.25. So the best choice is B.

Suppose That the Marginal Propensity to Save (MPS)equals 0