Question

If the marginal propensity to consume is 0.75, the value of the investment multiplier would be:
Options:

• A. 4
• B. 3
• C. 2
• D. 1

Hint:

The investment multiplier is greater when the marginal propensity to consume is high.

Answer 1

The Correct Option is A

The investment multiplier is calculated using the formula: \[ \text{Investment Multiplier} = \frac{1}{1 - \text{MPC}} = \frac{1}{1 - 0.75} = 4. \]