If the marginal propensity to consume (MPC)is 0.8, the multiplier is
A)5.0.
B)1.2.
C)0.2.
D)0.8.

Question

Quizplus · Accepted Answer

The multiplier is the reciprocal of the marginal propensity to save (MPS), which is equal to 1 - MPC. In this case, MPS = 0.2, so the multiplier = 1/0.2 = 5.0. This means that for every $1 increase in autonomous spending (such as government spending or investment), total spending will increase by $5 due to the multiplied effect of the initial spending.

If the Marginal Propensity to Consume (MPC)is 0