AP Macroeconomics Question 372: Answer and Explanation

Test Information

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Question: 372

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

Explanation:

A-The spending multiplier M = 1/(1 – MPC) = 1/MPS, so an increase in the marginal propensity to consume increases the multiplier.