The impact of the multiplier effect depends on the size of the initial change in expenditures.
The impact of the multiplier effect depends on both the initial change in spending and the MPC value because the MPC value is used to calculate the multiplier.

Question

Quizplus · Accepted Answer

The statement is correct. The multiplier effect is calculated by dividing the change in real GDP by the initial change in spending. However, the MPC value also plays a role in determining the size of the multiplier, as it represents the fraction of additional income that is spent. Therefore, both the initial change in spending and the MPC value are important factors in determining the impact of the multiplier effect.

The Impact of the Multiplier Effect Depends on the Size