The multiplier will be greater, other things being equal:

Question

Quizplus · Accepted Answer

All of the given statements are true. The multiplier effect states that a change in one component of aggregate demand (such as consumption spending) will lead to a greater change in the final equilibrium level of real GDP. This change is greater when the MPC is larger (B), as a larger portion of each additional dollar earned is spent. Additionally, the multiplier effect is enhanced when a smaller fraction of each dollar of disposable income goes to saving (C), as this means more money is available for spending. Finally, if the fraction of each dollar earned that goes to taxes is smaller (A), individuals and firms have more money to spend and therefore the multiplier effect will be greater.

The Multiplier Will Be Greater, Other Things Being Equal