Question:
If the Marginal Propensity to Consume (MPC) of an economy is 0.75, then the value of the expenditure multiplier will be:
If the Marginal Propensity to Consume (MPC) of an economy is 0.75, then the value of the expenditure multiplier will be:
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The expenditure multiplier is inversely related to the marginal propensity to save (MPS). It represents the change in income resulting from an initial change in autonomous expenditure.
Updated On: Apr 20, 2025
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Solution and Explanation
The formula for the expenditure multiplier is given by:
\[ {Expenditure Multiplier} = \frac{1}{1 - {MPC}} \]
Given that the Marginal Propensity to Consume (MPC) is 0.75, we can substitute this value into the formula:
\[ {Expenditure Multiplier} = \frac{1}{1 - 0.75} = \frac{1}{0.25} = 4 \]
Final Answer: The value of the expenditure multiplier is \( \boxed{4} \).
\[ {Expenditure Multiplier} = \frac{1}{1 - {MPC}} \]
Given that the Marginal Propensity to Consume (MPC) is 0.75, we can substitute this value into the formula:
\[ {Expenditure Multiplier} = \frac{1}{1 - 0.75} = \frac{1}{0.25} = 4 \]
Final Answer: The value of the expenditure multiplier is \( \boxed{4} \).
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