In the Keynesian model, the larger the marginal propensity to consume, the:
A) larger the multiplier.
B) larger the marginal propensity to save.
C) higher the income level of the economy.
D) smaller the change in income derived from a given change in government spending.

Question

Quizplus · Accepted Answer

In the Keynesian model, the multiplier is calculated by dividing the change in real GDP by the initial change in autonomous spending. The larger the marginal propensity to consume, the more likely it is that consumers will spend a higher percentage of any increase in income, leading to a larger overall increase in spending and a larger multiplier.

In the Keynesian Model, the Larger the Marginal Propensity to Consume