If the marginal propensity to consume (MPC) rises, the multiplier
A) also rises.
B) falls.
C) stays the same.
D) rises or falls, depending on the size of the increase in the MPC.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC). As MPC rises, 1-MPC falls, leading to a larger denominator and thus a larger multiplier. Therefore, the multiplier and MPC are positively related.

If the Marginal Propensity to Consume (MPC) Rises, the Multiplier