Question
Explain how each will impact the size of autonomous expenditure multiplier, other variables constant.
(a) Decrease in marginal propensity to consume
(b) Decrease in marginal propensity to import
(a) Decrease in marginal propensity to consume
(b) Decrease in marginal propensity to import
Answers
bobpursley
multilier= 1/(1-MPC+MPI)
so if mpC decreases, the denominator gets larger, so the multipler goes down.
If the mpi decreases, the denominator gets larger, and the multilier increases.
so if mpC decreases, the denominator gets larger, so the multipler goes down.
If the mpi decreases, the denominator gets larger, and the multilier increases.