If the MPC is 2/3 then the multiplier is
A)3/2, so a $100 increase in government spending increases aggregate demand by $150.
B)3/2, so a $100 increase in government spending increases aggregate supply by $150.
C)3, so a $100 increase in government spending increases aggregate demand by $300.
D)3, so a $100 increase in government spending increases aggregate supply by $300.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC). With an MPC of 2/3, the multiplier is 3. Therefore, a $100 increase in government spending increases aggregate demand by $300.

If the MPC Is 2/3 Then the Multiplier Is