Which of the following defines the government purchases multiplier?
A) 1/MPC+ MPI
B) 1/(1 - MPC)
C) MPC/(1 - MPC)
D) (1 - MPC)/MPC

Question

Quizplus · Accepted Answer

The government purchases multiplier is the ratio of the change in equilibrium output to the change in government purchases. It is calculated as 1/(1-MPC), where MPC (marginal propensity to consume) is the fraction of additional income that is spent on consumption. This formula shows that an increase in government purchases will increase aggregate demand by a multiple of the initial increase, with the exact multiplier depending on the MPC.

Which of the Following Defines the Government Purchases Multiplier