Question

If the marginal propensity to consume is 0.75, what is the value of multiplier? If the MPC increases to 0.9
how would the multiplier be affected?
[Ans: 4, 101​

Answer 1

Answer:

i) If MPC = 0.75, then  

Multiplier(k) = 1/ (1-MPC) = 1/(1-0.75) = 1/0.25 = 4  

(ii) If MPC = 0.90, then  

Multiplier(k) = 1/ (1-MPC) = 1/(1-0.90) = 1/0.10 = 10