Suppose that last year the slope of the AE curve is 0.67 and this year the slope of the AE curve changes to 0.8. Which of the following best describes what happens to the multiplier?

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the slope of the AE curve. Last year, the multiplier was 1/(1-0.67) = 3.03, and this year it is 1/(1-0.8) = 5. Thus, the multiplier rises from approximately 3 to 5.

Suppose That Last Year the Slope of the AE Curve