Question

The greater the value of the marginal propensity to consume A. the greater the value of autonomous consumption. B. the greater the value of the marginal propensity to save. C. the greater the value of the multiplier. D. the smaller the value of the multiplier.

Answer 1

Answer:

C. the greater the value of the multiplier

Explanation:

As we know that

The formula to compute the Government spending multiplier is shown below:

Government spending multiplier = 1 ÷ (1 - marginal propensity to consume)

where,

Marginal propensity to consume refers to the change in consumption with regard to the change in income

So if the value of the marginal propensity to consume is higher than there would also increase in the value of the multiplier and in the same proportion it would be greater

Answer 2

Answer:

C. the greater the value of the multiplier

Explanation:

• The marginal propensity to consume is the metric that quantifies the induced consumption and increases in the increases in consumer spending and thereby increasing the disposable income. This disposable income that the customer has is called as the propensity to consume and  

• An example of the household gets one extra dollar of disposable income, and has a marginal propensity to consume as 0.65, the dollar then household can spend 65 cents to save 35 cents.

• The MPC determines the value of the multiplier. The higher the MPC, the more is the values of the multiplier effect and vice versa.