Which of the following is the formula for the multiplier? OA MPC O C. Often the

Question

Which of the following is the formula for the multiplier? OA MPC O C. Often the multiplier formula is considered to be too simple because it ignores some real world complications. Which of the following is not such a reason? O B 1 - MPC OD. 1-MPC MPC 0 A. The formula ignores the impact of an increase in GDP on inflation. O B. The formula ignores the impact of an increase in GDP on imports. O C. The formula ignores the impact of an increase in GDP on consumption. 0 D. The formula ignores the impact of an increase in GDP on the interest rate.

Explanation / Answer

Spending multiplier is given by 1/1-MPC option B. And in this case MPC is the marginal propensity to consume

Option C. Because we have MPC, we can find the impact of an increase in GDP on the level of consumption. However, the effect on inflation interest rate and imports cannot be assessed in this multiplier.

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