Question

What is the multiplier formula?

Answer 1

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The magnitude of the multiplier is directly related to the marginal propensity to consume (MPC), which is defined as the proportion of an increase in income that gets spent on consumption. ... The multiplier would be 1 ÷ (1 - 0.8) = 5. So, every new dollar creates extra spending of $5.

Answer 2

Answer:

The magnitude of the multiplier is directly related to the marginal propensity to consume (MPC), which is defined as the proportion of an increase in income that gets spent on consumption. ... The multiplier would be 1 ÷ (1 - 0.8) = 5. So, every new dollar creates extra spending of $5.

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