If the slope of the AE curve increases, the multiplier
A) stays the same.
B) decreases.
C) increases.
D) can either increase or decrease depending on what happens to the MPC.

Question

Quizplus · Accepted Answer

The slope of the AE curve is determined by the marginal propensity to consume (MPC) and the marginal tax rate. An increase in the slope of the AE curve means that for every additional unit of income, there will be a greater increase in consumption and therefore a greater increase in aggregate demand. This leads to a larger multiplier effect, as each increase in spending leads to a larger increase in income, which in turn leads to further increases in spending. Therefore, an increase in the slope of the AE curve leads to an increase in the multiplier.

If the Slope of the AE Curve Increases, the Multiplier