If the marginal propensity to save is 0.8, calculate the multiplier?

The multiplier refers to the amount by which a change in autonomous spending (such as investment, government spending, or exports) can affect the overall level of economic activity. It measures the total impact of that change on output, income, and employment in the economy. The formula for the multiplier is 1/(1-MPC), where MPC is the marginal propensity to consume. However, since the question asks for the multiplier based on the marginal propensity to save (MPS), we need to first convert the MPS to MPC by subtracting it from 1: MPC = 1 - MPS. Given that the marginal propensity to save is 0.8, the marginal propensity to consume is: MPC = 1 - MPS MPC = 1 - 0.8 MPC = 0.2 So, the multiplier is: Multiplier = 1/(1-MPC) Multiplier = 1/(1-0.2) Multiplier = 1/0.8 Multiplier = 1.25 Therefore, the correct answer is: 1.25.