In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 400,the multiplier is 7.

Name: In an economy with no taxes or imports,if disposable income decreases by $2 000 and consumption decreases by $1 400,the multiplier is 7.
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Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Here, MPC = $1,400/$2,000 = 0.7, so the multiplier is 1/(1-0.7) = 3.33, not 7.

In an Economy with No Taxes or Imports,if Disposable Income