The smaller the slope of the AE curve, .
A) the greater is the value of the multiplier
B) the steeper is the consumption function
C) the smaller is slope of the saving function
D) the smaller is the value of the multiplier

Question

Quizplus · Accepted Answer

The slope of the AE curve represents the marginal propensity to consume (MPC), which is a key determinant of the multiplier. Specifically, the multiplier equals 1/MPC. Therefore, the smaller the slope of the AE curve (i.e. the smaller the MPC), the larger the value of the multiplier. Therefore, choice D is the correct answer. Choices A, B, and C are incorrect.

The Smaller the Slope of the AE Curve