Question

If the marginal propensity to consume (MPC) is 0.75, what is the value of the government spending multiplier?

Options

• 2

• 3

• 4

• 5

Answer 1

4

Explanation: 

The government spending multiplier is given by  \[\frac{1}{1-c}\], where c is MPC.
With MPC = 0.75, multiplier = \[\frac{1}{1-0.75}=\frac{1}{0.25}=4\].