The value of the expenditure multiplier changes if the ________ changes. i. marginal tax rate
Ii) marginal propensity to import
Iii) marginal propensity to consume
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

The expenditure multiplier is calculated as 1/(1-MPC) where MPC is the marginal propensity to consume. The value of MPC can be influenced by both the marginal tax rate (which reduces disposable income and therefore consumption) and the marginal propensity to import (which reduces the amount of spending that stays in the domestic economy). Therefore, all three factors (i, ii, and iii) can impact the value of the expenditure multiplier.

The Value of the Expenditure Multiplier Changes If the ________