Suppose aggregate output is demand-determined.Which of the following will lead to an increase in the simple multiplier?
A)an increase in the marginal propensity to consume
B)a decrease in the marginal propensity to consume
C)a decrease in autonomous consumption
D)an increase in autonomous consumption
E)an increase in investment

Question

Quizplus · Accepted Answer

The simple multiplier is calculated as 1/(1-MPC) where MPC is the marginal propensity to consume. An increase in MPC would lead to a larger denominator, therefore resulting in a smaller multiplier. Conversely, a decrease in MPC would lead to a smaller denominator, resulting in a larger multiplier. Therefore, option A would lead to an increase in the simple multiplier.

Suppose Aggregate Output Is Demand-Determined