If leakages out of the circular flow are 25 percent of additional income, the size of the multiplier effect is 4.

Name: If leakages out of the circular flow are 25 percent of additional income, the size of the multiplier effect is 4.
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Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1 - marginal propensity to consume), and if leakages are 25 percent, the marginal propensity to consume is 75 percent (or 0.75). Thus, the multiplier is 1/(1-0.75) = 4.

If Leakages Out of the Circular Flow Are 25 Percent