A decrease in the value of the simple multiplier can be caused by
A)a decrease in the net tax rate.
B)a decrease in the marginal propensity to import.
C)an increase in the marginal propensity to consume.
D)an increase in the marginal propensity to save.
E)an increase in the marginal propensity to spend.

Question

Quizplus · Accepted Answer

The simple multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. As the denominator increases (due to an increase in MPS, or marginal propensity to save), the value of the multiplier decreases, leading to a smaller change in output for a given change in autonomous spending. Therefore, an increase in the marginal propensity to save (option D) will cause a decrease in the value of the simple multiplier. The other options are not directly related to the value of the multiplier.

A Decrease in the Value of the Simple Multiplier Can