Which of the following is a true statement about the 'multiplier'?
A)The multiplier solely depends on the MPC.
B)The smaller the MPC, the smaller the multiplier.
C)The multiplier is a value between zero and one.
D)The multiplier effect does not occur when autonomous expenditures decrease.

Question

Quizplus · Accepted Answer

The smaller the MPC, the smaller the multiplier. This is because the multiplier is equal to 1/(1-MPC), so a smaller MPC results in a smaller denominator and therefore a larger multiplier.

All of the other statements are false. The multiplier also depends on the marginal tax rate and the level of imports. The multiplier is typically greater than one, meaning that an initial change in autonomous expenditures will result in a larger overall change in GDP through the multiplier effect. And the multiplier effect can occur for both increases and decreases in autonomous expenditures.

Which of the Following Is a True Statement About the 'Multiplier