In: Economics
If the marginal propensity to consume (MPC) is 0.9, then the multiplier for a change in autonomous spending will be
A. 100.
B. 0.1.
C. 10.
D. 9.
The correct option is option C (10)
The multiplier is usually represented by the letter ‘k’, and the
multiplier always increases when marginal propensity to consume
(MPC) increases. The multiplier has the opposite relationship with
marginal propensity to save (MPS) as it has with MPC as the
multiplier’s value always decreases with an increase in the value
of MPS.
The formula of multiplier when MPC is given:
Multiplier (k) = 1\1-MPC
Given: MPC= 0.9
Multiplier (k) = 1\1-0.9
= 1\0.1
= 10