If the marginal propensity to consume increases and the tax rate decreases, the marginal propensity to expend will _______ and the value of the multiplier will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

The marginal propensity to expend will increase because both an increase in the marginal propensity to consume and a decrease in the tax rate lead to more disposable income being spent. The value of the multiplier will increase because it is inversely related to the marginal propensity to save, which decreases when the marginal propensity to consume increases.

If the Marginal Propensity to Consume Increases and the Tax