If the government increased its spending by $100,and the GDP increased $400 as a result,the MPC must be:

Question

Quizplus · Accepted Answer

The MPC or Marginal Propensity to Consume is the fraction of each additional dollar of disposable income spent by the consumers. 
Using the formula: ΔY = ΔG × (1/1-MPC)
Where,
ΔY = change in GDP
ΔG = change in government spending
MPC = Marginal Propensity to Consume

Now, As given,
ΔG = $100, ΔY = $400
ΔY = ΔG × (1/1-MPC)
$400/($100×(1/1-MPC)) = 1-MPC
$400/$100(MPC) = 1-MPC
$4 = 1-MPC
MPC = 1-$4 = - $3
Therefore, MPC must be 0.75 as it is the only positive value in the given options.

If the Government Increased Its Spending by $100,and the GDP