As a result of the recent financial crisis, some analysts believed that the MPC in the U.S.declined.If this is true, the value of the multiplier is now
A)smaller.
B)larger.
C)the same.
D)magnified to a larger amount.

Question

Quizplus · Accepted Answer

If the MPC (marginal propensity to consume) declined in the U.S. as a result of the financial crisis, it means that people were less likely to spend their money and more likely to save it. This results in a smaller multiplier effect as less money is being circulated through the economy, reducing the impact of any initial injection of funds. Therefore, the value of the multiplier would be smaller.

As a Result of the Recent Financial Crisis, Some Analysts