An increase in the marginal propensity to consumer (MPC) ?
Correct answer: A. raises the value of the multiplier
- A. raises the value of the multiplier
- B. has no impact on the value of the multiplier?
- C. rarely occurs because the MPC is set by congressional legislation
- D. lowers the value of the multiplier
Explanation
The simple spending multiplier is 1 divided by 1 minus the MPC, so a higher MPC produces a larger multiplier. A higher MPC means each round of additional income generates more consumption spending.
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