Question

Which of the following is a true statement about the multiplier? Select one: Oa. The multiplier solety depends on the MPC. b. The smaller the MPC, the smaller the multiplier. O C. The multiplier is a value between zero and one O d. The multiplier effect does not occur when autonomous expenditures decrease

Macroeconomic

Answer 1

1. $\large Multiplier = \frac{1}{1-MPC} = \frac{1}{MPK}$

Multiplier is dependent on MPC and MPS.

2. When MPC = 0.8

Then multiplier = 1/(1-0.8) = 1/0.2 = 5

When MPC = 0.5

Multiplier = 1/(1-0.5) = 1/0.5 = 2

As we can see when MPC is greater then Multiplier is large. When MPC is smaller then multiplier is small.

C and D are incorrect.

Option B. Is incorrect.

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