If an initial increase in investment spending of $30 caused equilibrium output to increase by $120,what is the value of the MPC?
A) 0.25
B) 0.50
C) 0.60
D) 0.75
E) 0.80

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as the change in output divided by the change in investment, which is $120/$30 = 4. The formula for the multiplier is 1/(1-MPC). Solving 1/(1-MPC) = 4 gives MPC = 0.75.

If an Initial Increase in Investment Spending of $30 Caused