Consider a simple macro model with demand-determined output.In such a model,the smaller the marginal propensity to spend,the
A)smaller the MPS.
B)smaller the simple multiplier.
C)larger is investment.
D)larger the MPC.
E)larger the simple multiplier.

Question

Quizplus · Accepted Answer

In a demand-determined output model, the simple multiplier is given by 1/(1-MPC). So, the smaller the MPC (marginal propensity to consume), the larger the simple multiplier. Therefore, the correct option is (B) which states that the smaller the marginal propensity to spend, the smaller the simple multiplier.

Consider a Simple Macro Model with Demand-Determined Output