The smaller the MPC: a. the smaller the fraction of an increase in AD due...
The smaller the MPC:
| a. |
the smaller the fraction of an increase in AD due to an increase in government purchases that is consumption. |
|
| b. |
the greater the fraction of an increase in AD due to an increase in government purchases that is consumption. |
|
| c. |
the greater the change in government purchases required to achieve a given change in AD. |
|
| d. |
(a) and (c) |
Homework Answers
Answer
Option d
the multiplier relates the MPC and change in AD because of change in government purchases
Mulitplier=1/(1-MPC)
MPC is smaller then the Multiplier is smaller, so the change in AD is less if the multiplier is lower. As well as the change in government purchases should be large for a given change in AD.
Change in AD =change in government purchases * multiplier
Change in government purchases =chage in AD/multiplier
Add Answer to:
The smaller the MPC:
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