The size of the Keynesian multiplier depends on
A)the location of the expenditure line.
B)the level of spending.
C)the level of income.
D)the location of the 45-degree line.
E)the marginal propensity to consume.

Question

Quizplus · Accepted Answer

The size of the Keynesian multiplier depends on the marginal propensity to consume (MPC). MPC is the proportion of each additional dollar of income that is spent on consumption. A higher MPC will lead to a larger multiplier because the increased spending will result in even more income, which can then be spent again. Therefore, the size of the Keynesian multiplier depends on the MPC, and choice E is the correct answer.

The Size of the Keynesian Multiplier Depends on