Among the following marginal propensity to consume (MPC) values, which one would have the highest multiplier effect?
A)1/3
B)2/3
C)3/4
D)2/5
E)1/5

Question

Among the following marginal propensity to consume (MPC) values, which one would have the highest multiplier effect?
A)1/3
B)2/3
C)3/4
D)2/5
E)1/5​

Quizplus · Accepted Answer

The multiplier effect is the product of 1/(1-MPC). The higher the MPC, the higher the multiplier effect. Therefore, out of the given options, the MPC of 3/4 (or 0.75) would have the highest multiplier effect as the formula gives a value of 4 for the multiplier effect.

Among the Following Marginal Propensity to Consume (MPC) Values, Which