In the simple Keynesian model, the multiplier (k) is given by the formula k = 1 / (1 - MPC), where MPC is the Marginal Propensity to Consume. MPC is the proportion of an increase in income that is spent on consumption. - If MPC is high, (1 - MPC) is low, and the multiplier (1 / (1 - MPC)) is high. - If MPC is low, (1 - MPC) is high, and the multiplier (1 / (1 - MPC)) is low. Therefore, multipliers will be lower with a low marginal propensity to consume.
Multipliers will be lower with which one of the following?
Asked in UPSC CAPF 2018 · Topic: National Income & Gross Domestic Product (Savings, Investment, and their Relationship with National Income)
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Answer: B. Low marginal propensity to consume
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