Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend is between zero and 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

The simple multiplier formula in a demand-determined output model is 1/(1-MPC), where MPC is the marginal propensity to consume. Since the question states that the marginal propensity to spend (which includes consumption and other spending) is between zero and one, we can assume that the MPC is also between zero and one. Therefore, 1/(1-MPC) will be a positive number greater than one but less than infinity, resulting in choice D as the correct answer.

Consider a Simple Macro Model with a Constant Price Level