Suppose the price level is constant,output is demand-determined,and the economy is closed with no government.If the saving function is S = -100 + (0.4)Y,the simple multiplier is
A)0.2.
B)1.
C)2.5.
D)5.
E)Insufficient information to know.

Question

Quizplus · Accepted Answer

The simple multiplier is calculated as 1/(1 - MPC) or 1/MPS. Given the saving function S = -100 + 0.4Y, the marginal propensity to save (MPS) is 0.4. Therefore, the multiplier is 1/(1 - 0.6) = 1/0.4 = 2.5.

Suppose the Price Level Is Constant,output Is Demand-Determined,and the Economy