Answer to Question #95230 in Macroeconomics for Jack

Question

Explain how a decrease in marginal propensity to consumer will affect the size of the autonomous expenditure multiplier. Other things being constant.

Answer 1

The autonomous expenditure multiplier is determined by the formula: M = 1 / (1 - MPC)

That is, the size of the autonomous expenditure multiplier is greater, the greater the marginal propensity to consume (MPC).

Accordingly, a decrease in the marginal propensity to consume will lead to a decrease in the size of the autonomous expenditure multiplier.