If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from
A)5 to 2.5.
B)2.5 to 5.
C)0.8 to 0.6.
D)8 to 6.

Name: If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from A)5 to 2.5. B)2.5 to 5. C)0.8 to 0.6. D)8 to 6.
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Question

​If the MPC changed from 0.8 to 0.6, then the spending multiplier would change from
A)​5 to 2.5.
B)​2.5 to 5.
C)​0.8 to 0.6.
D)​8 to 6.

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). If MPC changes from 0.8 to 0.6, the multiplier changes from 1/(1-0.8) = 5 to 1/(1-0.6) = 2.5.

​If the MPC Changed from 0

If the MPC Changed from 0