If there are no taxes or imports and MPC = 0.5, the multiplier equals
A) 5.0.
B) 6.0.
C) 2.0.
D) 0.5.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/MPS (marginal propensity to save) or 1/(1-MPC) (marginal propensity to consume). Since there are no taxes or imports, MPC (marginal propensity to consume) is equal to 0.5. Therefore, the multiplier is calculated as 1/(1-0.5) = 2.0. Option C is the correct choice.

If There Are No Taxes or Imports and MPC =