If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports,
A) the slope of the consumption function becomes smaller.
B) the multiplier becomes smaller.
C) the multiplier becomes larger.
D) the slope of the savings function becomes larger.

Question

Quizplus · Accepted Answer

The multiplier is equal to 1/(1-MPC). Therefore, as the MPC increases, the denominator becomes smaller, making the multiplier larger.

If the MPC Increases from 0