PRC-3 · Chapter 15 · Question 41 of 44
If the marginal propensity to consume (MPC) in an overheating economy is 0.9, what is the exact mathematical value of the Keynesian multiplier?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 10
Explanation
The formula for the multiplier is 1 / (1 - MPC). Therefore, K = 1 / (1 - 0.9) = 1 / 0.1 = 10.
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