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Question
Calculate the marginal propensity to consume if the value of multiplier is 4.
Solution
Y = C + I
ΔY = ΔC + ΔI
Dividing both sides by ΔY, we will obtain
K = 1/1-MPC
Given value of multiplier is 4, then MPC will be
`k = 1/(1-MPC)`
`4 = 1/(1 -MPC) = 4(1-MPC) = 1`
4 - 4MPC = 1
-4MPC = 1 - 4
-4MPC = -3
MPC= 0.75
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