If the marginal propensity to consume (MPC) equals 0.75 (3/4) and the multiplier equals 2.0, the marginal propensity to import (MPM) must equal
A)0.25
B)0.50
C)0.75
D)1.00
E)1.25

Name: If the marginal propensity to consume (MPC) equals 0.75 (3/4) and the multiplier equals 2.0, the marginal propensity to import (MPM) must equal A)0.25 B)0.50 C)0.75 D)1.00 E)1.25
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Question

Quizplus · Accepted Answer

The multiplier (k) is calculated as 1 / (1 - MPC + MPM). Given k = 2 and MPC = 0.75, we solve 2 = 1 / (1 - 0.75 + MPM) to find MPM = 0.25.

If the Marginal Propensity to Consume (MPC) Equals 0