   Chapter 10.2, Problem 3ST

Chapter
Section
Textbook Problem

What happens to the multiplier as the MPC falls?

To determine

Impact of fall in MPC on the multiplier value.

Explanation

Multiplier value shows us that how much times more impact will be on the economy due to a small change in the income or investment in the economy. The multiplier value is calculated with the help of the Marginal propensity to consume (MPC) by the people and the simple multiplier formula is as follows:

Multiplier value=11MPC

When the MPC of the economy was 0.70, the multiplier value of the economy was 3.33. The multiplier value can be calculated for 0.60 and 0.80, respectively, as follows:

Multiplier value=11MPC=110.60=10

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