Firms Have No Inventories That They Can Draw Down to Meet

question 186

Multiple Choice

Firms have no inventories that they can draw down to meet an increase in demand. This will

• A) have no effect on the multiplier, because the MPC remains unchanged.
• B) decrease the size of the multiplier, because firms will be able to respond more quickly to a change in demand.
• C) increase the size of the multiplier, because output will need to immediately respond to changes in demand.
• D) either increase or decrease the multiplier, depending on the size of the MPC.