If leakages out of the circular flow are 25 percent of additional income, the size of the multiplier effect is 2.

Name: If leakages out of the circular flow are 25 percent of additional income, the size of the multiplier effect is 2.
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The size of the multiplier effect is calculated as 1/(1-MPC) or 1/MPS. If leakages are 25 percent of additional income, this implies a marginal propensity to save (MPS) of 0.25, leading to a multiplier of 1/(1-0.75) = 4.

If Leakages Out of the Circular Flow Are 25 Percent