Consider a simple macro model with a constant price level and demand-determined output.In the extreme situation where the marginal propensity to spend is one,the simple multiplier is
A)zero.
B)a positive number between zero and one.
C)one.
D)a positive number greater than one but less than infinity.
E)infinitely large.

Question

Quizplus · Accepted Answer

When the marginal propensity to spend is one, it means that all additional income is spent, leading to an infinitely large multiplier effect because each round of spending generates an equivalent amount of income in a continuous loop without any leakage into savings.

Consider a Simple Macro Model with a Constant Price Level