AP Macroeconomics Question 372: Answer and Explanation
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7. Which of the following tends to increase the spending multiplier?
- A. An increase in the marginal propensity to consume
- B. A decreased velocity of money
- C. An increase in the marginal propensity to save
- D. An increase in the real interest rate
- E. An increase in the price level
Correct Answer: A
A-The spending multiplier M = 1/(1 – MPC) = 1/MPS, so an increase in the marginal propensity to consume increases the multiplier.