If marginal propensity to consume is denoted by c, then government expenditure multiplier can be expressed as _______.

Question

Question

This question was previously asked in

SSC CGL 2022 Tier-I Official Paper (Held On : 09 Dec 2022 Shift 3)

Answer 1

The correct answer is 1/1-c.

Key Points

The magnitude of the multiplier is directly related to the marginal propensity to consume (MPC), which is defined as the proportion of an increase in income that gets spent on consumption.
MPC stands for Marginal Propensity to Consume.
It is defined as the proportion of an aggregate raise in income that is spent by a consumer on goods and services instead of saving it.
Expenditure multiplier= \(1\over Marginal\: propensity\: to\: save\)
We also know Marginal Propensity to save =1- Marginal propensity to consume = 1 - c
- i.e. Saving = Income - consume.
- here Income taken as 1 to ease the understand.
Therefore if we can express the expenditure multiplier = \(1\over 1-c\)