Which of the following makes the multiplier larger?
A) an increase in the marginal propensity to import
B) an increase in the marginal propensity to consume
C) an increase in the marginal propensity to save
D) an increase in the tax rate

Question

Quizplus · Accepted Answer

The size of the multiplier is directly related to the marginal propensity to consume (MPC), which represents the proportion of additional income that is spent on consumption. An increase in MPC leads to a larger multiplier, as each unit of additional income generated by an initial stimulus will be spent and circulated through the economy more times. An increase in the marginal propensity to import (A) or the marginal propensity to save (C) would have the opposite effect, reducing the size of the multiplier. An increase in the tax rate (D) would also reduce the size of the multiplier, as it would reduce the disposable income available for consumption.

Which of the Following Makes the Multiplier Larger