An increase in the marginal propensity to consume (MPC) will, other things constant, _____
A) increase the value of the multiplier.
B) decrease the value of the multiplier.
C) increase the marginal propensity to save.
D) shift the aggregate expenditure curve downward.
E) cause a downward movement along the aggregate expenditure curve.

Question

Quizplus · Accepted Answer

An increase in the MPC means that people are more likely to spend a larger proportion of their income, which will lead to a greater increase in aggregate demand for every increase in autonomous expenditure. As a result, the multiplier (which is equal to 1/(1-MPC)) will increase, indicating that a given change in autonomous expenditure will have a larger effect on real GDP.

An Increase in the Marginal Propensity to Consume (MPC) Will