Question

When MPC is equal to 1, the value of the multiplier is ______.

Options

• Zero

• One

• 10

• Infinity

Answer 1

When MPC is equal to 1, the value of the multiplier is infinity.

Explanation:

Using the formula K=11−MPCK=1−MPC1, if MPC = 1, then K=11−1=10=∞K=1−11=01=∞. This means the entire additional income is spent on consumption, and the multiplier process continues endlessly.