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:

Bowed-Out

Describes a production possibilities curve that is concave from the origin, indicating increasing opportunity costs.

Opportunity Costs

The cost associated with an alternative that is foregone when a particular decision or action is taken.

Manufacturers

Manufacturers are entities engaged in the industrial production of goods from raw materials through the use of machinery and labor.

Market

A place or mechanism where buyers and sellers converge to trade goods, services, or resources.