How is the multiplier (K) determined?

The multiplier (K) is determined by the formula 1 divided by the marginal propensity to save (MPS), which can also be expressed in terms of the marginal propensity to consume (MPC), since MPS and MPC are related through the equation MPS + MPC = 1. In this context, the multiplier reflects how an initial change in spending (such as investment or government spending) leads to a larger overall impact on the economy's output.

By applying the formula in this case, it becomes K = 1 / (1 - MPC), which simplifies to K = 1 / MPS. This means that as the MPC increases, the MPS decreases, and consequently, the multiplier effect becomes larger. Thus, understanding the relationship between consumption and saving is crucial for analyzing how spending impacts economic activity, validating why the choice indicating that the multiplier is defined as 1 divided by the marginal propensity to consume is accurate within the correct economic framework.

The other options do not correctly reflect the relationship defined by the multiplier effect. For instance, simply adding the MPS or calculating fractions without the proper reference to their relationship to the total impact on output does not yield the multiplier's value. The correct definition focuses on how changes in consumption behavior (