If the marginal propensity to consume (MPC) is 0.75, the value of the multiplier is

Question

a. 0.75.
b. 4.
c. 5.
d. 7.5.
e. none of the above.

Answer 1

The value of the multiplier (k) can be calculated using the formula:

$$k=\frac{1}{1-MPC}$$

Given that the marginal propensity to consume (MPC) is 0.75, we can substitute it into the formula:

$$k=\frac{1}{1-0.75}$$ $$k=\frac{1}{0.25}$$ $$k=4$$

Therefore, the value of the multiplier is b. 4.