The size of the expenditure multiplier is influenced by i. the marginal propensity to consume.
Ii) autonomous spending.
Iii) the marginal tax rate.
A) i only
B) ii only
C) iii only
D) ii and iii
E) i and iii

Question

Quizplus · Accepted Answer

The size of the expenditure multiplier is determined by the marginal propensity to consume, which is the fraction of additional income that households consume. Therefore, i) the marginal propensity to consume has a significant influence on the size of the multiplier.

Autonomous spending is spending that is not influenced by changes in income, such as government spending or investment spending. Autonomous spending increases the multiplier because it creates more spending that leads to increased income, which then leads to even more spending. Therefore, ii) autonomous spending also has an impact on the size of the multiplier.

The marginal tax rate represents the fraction of additional income that is paid in taxes. A higher marginal tax rate reduces the amount of disposable income, decreasing the marginal propensity to consume and thus decreasing the size of the multiplier. Therefore, iii) the marginal tax rate has an influence on the size of the multiplier.

Therefore, the correct answer is E, i and iii.

The Size of the Expenditure Multiplier Is Influenced by I