Question

Marginal Propensity to Marginal Propensity to Consume (MPC) Save (MPS) Multiplier (m) 0.92 10 0.85 0.20 23). a). In the above table, what is the value of the marginal propensity to consume MPC) that correctly fills in blank (G) and the value of the income multiplier that correctly fills in blank (H)? Page 9 b)When the MPC increases, the income/spending multiplier (increases or decreas es). If MPC decreases?

Answer 1

Q.23.

a)

If MPS = 0.20, then MPC = 1-0.20 = 0.80

Hence G = 0.80

Income multiplier is given as:

Hence H = 5

b)

As can be seen from table, when MPC increases, income multiplier increase as well.

If MPC decreases, income multiplier also decreases.