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 0.8,the simple multiplier is
A)0.
B)0.8.
C)1.25.
D)5.0.
E)8.0.

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 0.8, the multiplier is 1/(1 - 0.8) = 1/0.2 = 5.0.

Consider a Simple Macro Model with a Constant Price Level