Assume in a closed economy that taxes are fixed and the marginal propensity to consume is equal to 0.8. What is the government purchases multiplier?
A)10
B)5
C)4
D)3

Name: Assume in a closed economy that taxes are fixed and the marginal propensity to consume is equal to 0.8. What is the government purchases multiplier? A)10 B)5 C)4 D)3
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Quizplus · Accepted Answer

The government purchases multiplier in a closed economy with a marginal propensity to consume (MPC) of 0.8 is calculated as 1/(1-MPC) = 1/(1-0.8) = 1/0.2 = 5.

Assume in a Closed Economy That Taxes Are Fixed and the Marginal