Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?
A) When consumption increases by $5, income increases by $1.
B) When consumption increases by $1, saving increases by $5.
C) When investment increases by $1, income increases by $5.
D) When investment increases by $1, saving increases by $5.

Question

Quizplus · Accepted Answer

The Keynesian multiplier is calculated as 1/(1-MPC). With an MPC of 0.8, the multiplier is 5, meaning an increase in investment by $1 leads to an increase in income by $5.

Within the Keynesian Model, If the Marginal Propensity to Consume