The simple multiplier 1/MPS
A)understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
B)understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.
C)overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
D)overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

Question

Quizplus · Accepted Answer

The simple multiplier formula 1/MPS assumes no leakages like imports or taxes, thus overstating the actual multiplier by not accounting for these factors.

The Simple Multiplier 1/MPS