If the marginal propensity to consume (MPC) in an economy is $0.8$, what is the value of the Keynesian multiplier?

Step-by-step solution

1. Step 1: Identify the formula for the Keynesian multiplier: $k=\frac{1}{1-MPC}$, because the multiplier is the reciprocal of the marginal propensity to save, $MPS=1-MPC$.
2. Step 2: Substitute $MPC=0.8$ into the formula: $k=\frac{1}{1-0.8}=\frac{1}{0.2}$.
3. Step 3: Simplify the fraction: $\frac{1}{0.2}=5$.
4. Step 4: Conclude that the multiplier is $5$.

Concept tested: Keynesian multiplier

Published 7 October 2026 · How this solution was prepared and checked