The size of the spending multiplier increases from:
A) an increased response of consumption to a change in income.
B) a decreased response of consumption to a change in income.
C) an increase in the income tax rate on marginal income.
D) an increase in consumer purchases of imports to a change in income.

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. The MPC measures the change in consumption spending due to a change in income. If consumption spending is more responsive to changes in income, then the MPC is higher, and the spending multiplier is larger. Therefore, an increased response of consumption to a change in income would lead to a larger spending multiplier.

The Size of the Spending Multiplier Increases From