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

Question

Quizplus · Accepted Answer

The multiplier effect is based on the marginal propensity to consume (MPC), which is the fraction of an increase in income that is spent on consumption. Therefore, an increase in the MPC leads to a larger multiplier effect, as each dollar of additional income will lead to more consumption spending and, in turn, more income for others.

Which of the Following Makes the Multiplier Larger