Question

If the Marginal Propensity to Consume (MPC) of an economy is 0.75, then the value of the expenditure multiplier will be:

Hint:

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.

Answer 1

Correct Answer: 4

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 \( \boxed{4} \).