Question

If the marginal propensity to consume is 0.75, what is the value of the multiplier? If the MPC increases to 0.9, how would the multiplier be affected?

Answer 1

k = `1/(1-"MPC")`

When MPC = 0.75

k = `1/(1-0.75)`

= `1/0.25`

k = 4

When MPC = 0.9

k = `1/(1-0.9)`

= `1/0.1`

k = 10