Which of the following affects the magnitude of the expenditure multiplier?
i. marginal propensity to consume
ii. marginal propensity to invest
iii. marginal tax rate
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

The magnitude of the expenditure multiplier is affected by the marginal propensity to consume (MPC) and the marginal tax rate. As MPC increases, the expenditure multiplier increases, as more of each additional dollar of income is spent. As the marginal tax rate increases, the expenditure multiplier decreases, as a larger proportion of each additional dollar of income is taxed and not spent. Marginal propensity to invest (MPI) does not directly affect the expenditure multiplier.

Which of the Following Affects the Magnitude of the Expenditure