If leakages out of the circular flow are 50 percent of additional income, the size of the multiplier effect is 4.

Name: If leakages out of the circular flow are 50 percent of additional income, the size of the multiplier effect is 4.
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Quizplus · Accepted Answer

The size of the multiplier effect is calculated as 1/(1-MPC) or 1/MPS. If leakages are 50 percent of additional income, the marginal propensity to save (MPS) is 0.5, making the multiplier 1/(1-0.5) = 2, not 4.

If Leakages Out of the Circular Flow Are 50 Percent