Suppose that last year the slope of the AE curve is 0.67 and this year the slope of the AE curve changes to 0.8. Which of the following best describes what happens to the multiplier?
A) It rises from 3 to 5.
B) It rises from 1.25 to 1.49.
C) It falls from 5 to 3.
D) It falls from 1.49 to 1.25.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the slope of the AE curve. An increase in the slope from 0.67 to 0.8 increases the multiplier from 3 (1/(1-0.67)) to 5 (1/(1-0.8)).

Suppose That Last Year the Slope of the AE Curve