Answer to Question #211707 in Economics for Paballo

Question

An increase in the marginal propensity to consume …

[1] decreases the value of the multiplier

[2] does not affect the multiplier.

[3] increases the value of the multiplier.

[4] will not occur because the marginal propensity to consume is set by government.

Answer 1

As multiplier formula is m = 1/(1 - mpc), then an increase in the marginal propensity to consume increases the value of the multiplier.

So, the correct answer is [3].