PRC-3 · Chapter 15 · Question 21 of 44
If the citizens of a country spend 75% of any new income they receive (Marginal Propensity to Consume = 0.75), what is the exact value of the Keynesian Investment Multiplier?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 4
Explanation
Using the formula K = 1 / (1 - MPC). K = 1 / (1 - 0.75) = 1 / 0.25 = 4. The initial investment will multiply four times.
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