Question

Define multiplier.what is the relation between marginal propensity to consume and multiplier? Calculate the the marginal propensity to consume if the value of multiplier is 4

Answer 1

Multiplier -— This is the factor by which gains in total out put are greater than the change in spending that caused it.

Marginal propensity to consume — This is the marginal decision by a household to spend.

The size of a multiplier depends on marginal decision to spend or to save.

The multiplier formula is :

Multiplier = 1 \ 1 - MPC

Where MPC is the marginal propensity to consume.


Given multiplier = 4

4 = 1 / 1 - MPC

4 - 4MPC = 1

-4MPC = 1 - 4

-4MPC = - 3

MPC = 3/4

MPC = 0.75

Answer 2

Answer:

Explanation:

Relation b/w mps and mpc