If the marginal propensity to consume (MPC) is 0.9, then the multiplier for a change in...

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.

Solutions

Expert Solution

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

Rahul Sunny answered 1 year ago

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