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

Economics

ScanSolve AI Answer

Step-by-step solution

3 steps

1. If the marginal propensity to consume (MPC) is 0.75, the value of the multiplier is:

  1. Recall the formula for the multiplier (kk).

    The multiplier is calculated using the marginal propensity to consume (MPC) with the formula:

    k=11−MPCk = \frac{1}{1 - \text{MPC}}
  2. Substitute the given MPC value into the formula.

    Given MPC = 0.75.

    k=11−0.75=10.25=4\begin{align*} k &= \frac{1}{1 - 0.75} \\ &= \frac{1}{0.25} \\ &= 4 \end{align*}

    The value of the multiplier is 4.

  3. Select the correct option.

    Comparing the calculated value with the given options:
    A. 2
    B. 4
    C. 1.33
    D. 0.25

    The calculated value matches option B.

    B. 4\boxed{\text{B. } \textbf{4}}
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