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    Question

    The "Multiplier" effect is larger when the marginal

    propensity to consume (MPC) is:
    A Lower. Correct Answer Incorrect Answer
    B Higher. Correct Answer Incorrect Answer
    C Equal to zero. Correct Answer Incorrect Answer
    D Equal to the marginal propensity to import. Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The simple multiplier is 1/(1-MPC) or 1/MPS. A higher MPC (lower MPS) means more of each income round is spent, creating a larger multiplier.

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