The multiplier is larger if the
A) marginal propensity to import is larger.
B) marginal propensity to save is larger.
C) income tax rate is higher.
D) marginal propensity to consume is larger.

Question

Quizplus · Accepted Answer

The multiplier effect is based on the concept that an increase in one component of aggregate demand (such as consumption) will lead to an even larger increase in overall output and income. The larger the marginal propensity to consume, the larger the multiplier effect will be, as more of the increase in income will be spent and further stimulate demand. Therefore, a larger marginal propensity to consume will lead to a larger multiplier effect.

The Multiplier Is Larger If the