Question

If the marginal propensity to consume (MPC) is 0.60, what is the expenditure multiplier?


0.4.


0.6.


2.5.


6.0.

Answer 1

Multiplier = 1 / (1 − MPC) = 1 / (1 − 0.60) = 1 / 0.40 = 2.5.