In a simplified economy without government or foreign trade, if the multiplier equals 2.5, what is the marginal propensity to consume (MPC)?

Explanation

The multiplier (k) is calculated as 1 divided by (1 minus MPC). Given a multiplier of 2.5, we solve for MPC: 2.5 = 1 / (1 - MPC) which leads to MPC = 0.6.