If the MPC were to increase from 0.75 to 0.8, then the spending multiplier would:
A) increase from 4 to 5.
B) decrease from 5 to 4.
C) increase from 0.2 to 0.25.
D) decrease from 1.25 to 1.2.

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/MPC. If the MPC increases from 0.75 to 0.8, the reciprocal would decrease from 1.33 (1/0.75) to 1.25 (1/0.8), resulting in an increase in the spending multiplier from 4 to 5.

If the MPC Were to Increase from 0