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

Question

Quizplus · Accepted Answer

The simple multiplier is determined by the marginal propensity to consume (MPC). As the MPC increases, the multiplier also increases, which means that a change in autonomous spending will have a larger effect on aggregate output. Therefore, an increase in the MPC (choice D) will lead to an increase in the simple multiplier.

Suppose Aggregate Output Is Demand- Determined