An increase in the marginal propensity to consume will increase the size of the multiplier.

Name: An increase in the marginal propensity to consume will increase the size of the multiplier.
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Question

Quizplus · Accepted Answer

The formula for the multiplier is 1/(1-MPC), where MPC is the marginal propensity to consume. As the MPC increases, the denominator of the multiplier formula decreases, hence making the multiplier larger. Therefore, an increase in the MPC will increase the size of the multiplier.

An Increase in the Marginal Propensity to Consume Will Increase