Assuming a simple Keynesian multiplier,and given an increase in planned investment of $100 billion,the effect on total output will be greater than $100 billion only if the
A)MPS is greater than zero.
B)MPC is zero.
C)MPS is less than zero.
D)MPC is greater than one.

Question

Quizplus · Accepted Answer

The simple Keynesian multiplier formula states that the change in equilibrium output is equal to the initial change in spending multiplied by the multiplier. The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. If MPS (marginal propensity to save) is greater than zero, then 1-MPC is less than one, meaning the multiplier is greater than one. This indicates that the change in equilibrium output will be greater than the initial $100 billion increase in planned investment.

Assuming a Simple Keynesian Multiplier,and Given an Increase in Planned