How Does the Multiplier Change When the MPC Increases, and What

question 45

Multiple Choice

How does the multiplier change when the MPC increases, and what is the effect on aggregate demand?

• A) Higher MPC increases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
• B) Higher MPC increases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.
• C) Higher MPC decreases the multiplier so that changes in government expenditures have a larger effect on aggregate demand.
• D) Higher MPC decreases the multiplier so that changes in government expenditures have a smaller effect on aggregate demand.

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Definitions:

Schedule of Cost

A detailed statement that shows the various costs associated with the production of goods or provision of services during a specific period.

Raw Materials

The basic materials from which products are made, often processed or combined with other materials in the production process.

Inventories

Assets held for sale in the ordinary course of business, or materials that will be consumed or used in the production of goods to be sold.

Purchased

Refers to the acquisition of goods or services in exchange for money or its equivalent.