Question
The _____________ is MPC, the smaller is the expenditure multiplier.
Step 1
It is calculated as 1 divided by the marginal propensity to consume (MPC). The MPC represents the proportion of additional income that individuals or households will spend rather than save. It is a key determinant of the expenditure multiplier. Show more…
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what is MPC, MPS and spending multiplier?
The larger is the marginal propensity to consume, the larger will be the multiplier.
What would the expenditure multiplier be in an economy without government spending or taxes where the MPC is 0.8 and the $M P m$ is $0 ?$ Where the $M P m$ is $0.1 ?$ Where the $M P m$ is $0.9 ?$ Explain why the multiplier might even be less than $1 .$
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