Question

if the mpc decreases, does the spending multiplier increase, decrease, or stay the same? explain your reasoning.

Answer 1

False

Government spending multiplier =1/(1-MPC)

the decrease in MPC increases denominator and decreases government spending multiplier so the MPC and multiplier are positively related.

Where,

MPS stands for marginal propensity to save which is the percentage of any addition in income which households are going to save; and

MPC stands for marginal propensity to consume, and it is the percentage of any addition in income which households are expected to consume.

By definition, MPS + MPC = 1 and MPS = 1 − MPC.

FOR MORE INFORMATION REGARDING MPC VISIT THE LINK:

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