Which of the following defines the government purchases multiplier?
A) MPC + MPI
B) 1 - MPC
C) 1 / MPC
D) 1 / (1 - MPC)

Question

Quizplus · Accepted Answer

The government purchases multiplier is determined by the formula 1 / (1 - MPC), where MPC is the marginal propensity to consume. This formula represents the amount by which GDP will be affected by a change in government purchases. When the government increases its purchases, this leads to an increase in demand and therefore an increase in GDP. The size of the multiplier depends on the marginal propensity to consume, as a higher MPC means that households will spend more of any additional income resulting from the government purchases.

Which of the Following Defines the Government Purchases Multiplier