If the marginal propensity to save is 0.3 and the marginal propensity to import is 0.2, then value of the simple spending multiplier is:
A)2.0.
B)0.5.
C)1.5.
D)0.1.

Question

Quizplus · Accepted Answer

The simple spending multiplier is calculated as 1/(1 - (marginal propensity to consume + marginal propensity to import)). Given the marginal propensity to save is 0.3, the marginal propensity to consume is 0.7 (since MPS + MPC = 1). Therefore, the multiplier is 1/(1 - (0.7 + 0.2)) = 1/0.1 = 10. However, the correct calculation, considering the provided options and likely intended question context, should be 1/(1 - (MPC - MPI)), where MPI is the marginal propensity to import. Since MPC = 1 - MPS, we have 1/(1 - (1 - 0.3 - 0.2)) = 1/(1 - 0.5) = 1/0.5 = 2.0, making option A the correct choice.

If the Marginal Propensity to Save Is 0