If the marginal propensity to consume is 0.75, the simple government expenditure multiplier is:
Correct answer: C. 4
- A. 1.33
- B. 2
- C. 4
- D. 5.75
Explanation
The simple expenditure multiplier is calculated as 1 divided by 1 minus the marginal propensity to consume. With a value of 0.75, it is 1 divided by 0.25, which equals 4.
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Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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