Mathematically, the Value of the Spending Multiplier in Terms of the Marginal

question 140

Multiple Choice

Mathematically, the value of the spending multiplier in terms of the marginal propensity to consume (MPC) is given by the formula:

• A) MPC − 1.
• B) (MPC − 1)/MPC.
• C) 1/MPC.
• D) 1/(1 − MPC).

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Definitions:

Variable Costs

Expenses that vary directly with the amount of activity or output in a company.

Financial Advantage

The benefit obtained by a business from its financial decisions and strategies.

Fixed Manufacturing Overhead

Costs related to manufacturing that do not change with the level of production, such as salaries of supervisors and rent for factory space.

Contribution Margin

The difference between sales revenue and variable costs of production, indicating how much revenue contributes towards covering fixed costs and generating profit.