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If the marginal propensity to consume (MPC) is 0.2, what is the denominator of the multiplier formula equal to?

Use the information below to answer the question. The formula for the multiplier is as follows:

[tex]\[ M = \frac{1}{1 - \text{MPC}} \][/tex]

Here, [tex]\( M \)[/tex] is the multiplier and [tex]\( \text{MPC} \)[/tex] is the marginal propensity to consume. The numerator is equal to 1, and the denominator is equal to [tex]\( 1 - \text{MPC} \)[/tex].

A. 0.8
B. 1.9

Note: Ensure your calculations reflect the correct mathematical principles.



Answer :

GinnyAnswer
To determine the denominator of the multiplier formula when given the marginal propensity to consume (MPC), we need to apply the provided formula for the multiplier, which is:

[tex]\[ M = \frac{1}{1 - \text{MPC}} \][/tex]

Given that MPC is 0.2, we follow these steps to evaluate the denominator:

1. The multiplier's denominator is given by [tex]\( 1 - \text{MPC} \)[/tex].
2. Substitute the given MPC value into the formula:

[tex]\[ 1 - 0.2 \][/tex]

3. Perform the subtraction:

[tex]\[ 1 - 0.2 = 0.8 \][/tex]

Thus, the denominator of the multiplier formula when the marginal propensity to consume (MPC) is 0.2 is equal to 0.8.