An economy has a marginal propensity to save (MPS) of 0.4. Calculate the multiplier.

Step-by-step solution

1. First find MPC using the identity $\text{MPC}+\text{MPS}=1$.
2. Given MPS = 0.4, therefore $\text{MPC}=1-0.4=0.6$.
3. Apply the multiplier formula $k=\frac{1}{1-\text{MPC}}$.
4. Substitute MPC = 0.6: $k=\frac{1}{1-0.6}=\frac{1}{0.4}$.
5. Calculate: $\frac{1}{0.4}=2.5$.

Concept tested: Marginal propensity to consume

Published 28 September 2026 · How this solution was prepared and checked