Which of the following will not weaken the value of the multiplier in an economy in response to a change in autonomous spending?
A) A rise in net imports.
B) A fall in the marginal propensity to consume.
C) An increase in the proportion of tax taken of every euro earned
D) An increase in the interest rate

Question

Quizplus · Accepted Answer

An increase in the interest rates will increase the cost of borrowing, leading to a reduction in investment and consumption. This will reduce the value of the multiplier as the initial increase in autonomous spending will lead to a smaller increase in the overall level of spending in the economy. A rise in net imports, a fall in the marginal propensity to consume, and an increase in the proportion of tax taken of every euro earned will all reduce the value of the multiplier by reducing the overall level of spending in the economy.

Which of the Following Will Not Weaken the Value of the Multiplier