Use the following graph for a private closed economy to answer the next question.
The multiplier for the above economy is:
A. 2
B. 3
C. 4
D. 5
Homework Answers
The formula for calculating the Multiplier in a closed economy is=1/mps.
where MPS is the Marginal Propensity to Save.
-
If you know the MPC, you know the MPS, because MPC + MPS = 1.
mpc is marginal propensity to consume= ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income
C=150
Y=300.
mpc=150/300=.5
mps=1-.5=.5
multiplier=1/.5=2
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