If the MPC is 0.5, then the spending multiplier must be:
A) 1.2.
B) 2.
C) 2.25.
D) 2.5.

Name: If the MPC is 0.5, then the spending multiplier must be: A) 1.2. B) 2. C) 2.25. D) 2.5.
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Question

Quizplus · Accepted Answer

The spending multiplier can be calculated by dividing 1 by the marginal propensity to save (MPS) which is equal to 1 - MPC.

So if MPC = 0.5, then MPS = 0.5 and the spending multiplier = 1 / 0.5 = 2. Therefore, the correct choice is B.

If the MPC Is 0