Consider the simplest macro with demand-determined output.If the marginal propensity to consume out of disposable income (MPC)is equal to the marginal propensity to spend out of national income (z),then
A)the marginal propensity to import (m)is larger than the tax rate (t).
B)the marginal propensity to import (m)is smaller than the tax rate (t).
C)the simple multiplier is smaller in a closed economy with no government.
D)the simple multiplier is larger in a closed economy with no government.
E)there is no effect on the simple multiplier from imports or tax rates.

Question

Quizplus · Accepted Answer

If the MPC is equal to the marginal propensity to spend (z), then changes in imports or tax rates do not affect the simple multiplier, as the multiplier is determined by the MPC in a demand-determined output model.

Consider the Simplest Macro with Demand-Determined Output