Question

If the marginal propensity to save is 0.2, the multiplier will be _____. a. 0.8

b. 8
c. 1.25
d. 5

Answer 1

Multiplier = 1 / (1 - Marginal Propensity to Consume)

where Marginal Propensity to Consume (MPC) is equal to 1 - Marginal Propensity to Save.

Given that the Marginal Propensity to Save is 0.2, we can calculate the MPC as:

MPC = 1 - Marginal Propensity to Save
MPC = 1 - 0.2
MPC = 0.8

Substituting the value of MPC into the formula for the multiplier, we get:

Multiplier = 1 / (1 - MPC)
Multiplier = 1 / (1 - 0.8)
Multiplier = 1 / 0.2
Multiplier = 5

Therefore, the multiplier is 5, and the correct answer is (d).

Answer 2

The answer is letter B. 8