If the marginal propensity to consume is very close to zero, then the expenditure multiplier
A) is very close to zero.
B) is very close to one.
C) is very large.
D) cannot be calculated.
E) might be negative if the marginal tax rate is large enough.

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as 1/(1-MPC). If the marginal propensity to consume (MPC) is close to zero, the multiplier approaches 1.

If the Marginal Propensity to Consume Is Very Close to Zero