If the marginal propensity of consume MPC is 0.75 the value of the multiplier is ?
Correct answer: A. 4
- A. 4
- B. 7.5
- C. 5
- D. 0.75
Explanation
The simple spending multiplier is calculated as 1 divided by 1 minus MPC: 1/(1 - 0.75) = 4. A higher MPC produces a larger multiplier because less of each income increase is saved.
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