As the marginal propensity to consume decreases, the value of the multiplier
A) stays the same.
B) can increase or decrease.
C) increases.
D) decreases.

Question

Quizplus · Accepted Answer

The multiplier is the ratio of the change in output to the initial change in spending. As the marginal propensity to consume decreases, this means that for each additional dollar earned, less will be spent and more will be saved. Therefore, the initial change in spending will have a smaller effect on output, resulting in a smaller multiplier. Thus, as the marginal propensity to consume decreases, the value of the multiplier decreases.

As the Marginal Propensity to Consume Decreases, the Value of the Multiplier