As the marginal propensity to consume (MPC) increases, the spending multiplier
A) increases.
B) decreases.
C) remains constant.
D) becomes indefinable.

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). Therefore, as MPC increases, the denominator (1-MPC) decreases, which causes the entire fraction to increase, resulting in a higher spending multiplier.

As the Marginal Propensity to Consume (MPC) Increases, the Spending