CA Foundation P4 · Chapter 5 · Question 7 of 15
If the marginal propensity to consume is 0.8, the value of the investment multiplier in a simple two-sector Keynesian model is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 5
Explanation
Multiplier k = 1/(1 - MPC) = 1/MPS = 1/(1 - 0.8) = 1/0.2 = 5. 1.25 is 1/MPC, a common error, and 0.2 is the MPS itself.
More Determination of National Income MCQs
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