Which of the following is NOT true about the multiplier effect? If the Marginal

ID: 1154752 • Letter: W

Question

Which of the following is NOT true about the multiplier effect?

If the Marginal Propensity to Consume is .75, then the Multiplier is 4.

If the multiplier is 3, then an increase of $30 billion in investment spending will actually boost GDP by $90 billion.

The multiplier is calculated by dividing the number "1" by the Marginal Propensity to Save. Multiplier = 1/(1-MPC).

If GDP increases $100 billion as a direct result of a $25 billion increase in investment, then the multiplier is 3.

If the Marginal Propensity to Consume is .75, then the Multiplier is 4.

If the multiplier is 3, then an increase of $30 billion in investment spending will actually boost GDP by $90 billion.

The multiplier is calculated by dividing the number "1" by the Marginal Propensity to Save. Multiplier = 1/(1-MPC).

If GDP increases $100 billion as a direct result of a $25 billion increase in investment, then the multiplier is 3.

Answer is d. If GDP increases $100 billion as a direct result of a $25 billion increase in investment, then the multiplier is 3.

Explanation:

Multiplier should have been 4. as the increases in investment has been multiplied by 4 to get inccreased GDP of $100 billion.

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