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 between zero and one,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

The simple multiplier in such a model is given by the formula 1/(1-MPC), where MPC is the marginal propensity to spend. Since the MPC is between 0 and 1, the value of the multiplier is greater than 1 but less than infinity. Therefore, the correct choice is D.

Consider a Simple Macro Model with a Constant Price Level