The simplified spending multiplier is calculated as:
A) 1/(1 − MPC).
B) −1/(1 − MPC).
C) −MPC/(1 − MPC).
D) (1 − MPC) × −MPC.

Question

Quizplus · Accepted Answer

The simplified spending multiplier is calculated as 1/(1 − MPC). This is because the spending multiplier is the ratio of the change in aggregate expenditure to the change in autonomous expenditure. The change in aggregate expenditure is equal to the change in autonomous expenditure multiplied by the multiplier. The multiplier is equal to 1/(1 − MPC), where MPC is the marginal propensity to consume.

The Simplified Spending Multiplier Is Calculated As