The simplified expenditure multiplier:
A) is calculated as 1/(1 − MP).
B) has a positive value.
C) grows larger as the marginal propensity to consume increases.
D) All of these are true.

Question

Quizplus · Accepted Answer

The simplified expenditure multiplier is calculated as 1/(1-MP) where MP is the marginal propensity to consume. Since the denominator (1-MP) is always less than 1, the multiplier is always positive. Additionally, as the marginal propensity to consume increases, the denominator becomes smaller, leading to a larger multiplier. Therefore, all three statements are true.

The Simplified Expenditure Multiplier