If the multiplier is 2 and the investment function is: I=200. What is the value of the marginal propensity to consume?
Question
Solution 1
The marginal propensity to consume (MPC) can be calculated using the formula for the multiplier, which is 1/(1-MPC). Given that the multiplier is 2, we can set up the equation as follows:
2 = 1/(1-MPC)
To solve for MPC, we first subtract 1 from both sides:
2 - 1 = 1/(1-MPC) - 1
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