How does the multiplier change when the MPC increases, and what is the effect on aggregate demand?
A) Higher MPC increases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
B) Higher MPC increases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.
C) Higher MPC decreases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
D) Higher MPC decreases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.

Question

Quizplus · Accepted Answer

The multiplier is directly related to the MPC. As the MPC increases, the multiplier also increases. This means that changes in government expenditures have a larger effect on aggregate demand, as each dollar of government spending is distributed through the economy through consumption and investment.

How Does the Multiplier Change When the MPC Increases, and What