Consider a simple macro model with a constant price level and demand-determined output.If the marginal propensity to spend in such a model is zero,the simple multiplier is
A)zero.
B)a positive number between zero and one.
C)one.
D)a positive number greater than one but less than infinity.
E)infinitely large.

Question

Quizplus · Accepted Answer

When the marginal propensity to spend is zero, it implies that any increase in income will not lead to an increase in spending. Therefore, the simple multiplier, which is the ratio of the change in output to the initial change in spending, will be equal to 1. This means that a change in autonomous spending will result in an equivalent change in output. Hence, the correct answer is C, one.

Consider a Simple Macro Model with a Constant Price Level