Among the following MPC values, which one would have the highest multiplier effect?

Question

Quizplus · Accepted Answer

The multiplier effect is calculated by dividing 1 by the marginal propensity to save (MPS). Since MPC + MPS = 1, if we have a higher MPC, then we will have a lower MPS and therefore a higher multiplier effect. Among the given options, option C has the highest MPC value of 0.75, which means the MPS is only 0.25. Therefore, the multiplier effect will be 1/0.25 = 4. This is higher than the other options and hence option C is the best choice.

Among the Following MPC Values, Which One Would Have the Highest