Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is 0.6,the simple multiplier is
A)0.
B)0.6.
C)1.67.
D)2.5.
E)6.0.

Question

Quizplus · Accepted Answer

The simple multiplier in a demand-determined output model is calculated as 1/(1 - marginal propensity to spend). With a marginal propensity to spend of 0.6, the multiplier is 1/(1 - 0.6) = 1/0.4 = 2.5.

Consider a Simple Macro Model with a Constant Price Level