A rise in MPC makes the total expenditures (TE) curve __________ and __________ the multiplier.?

Question

please feel in the blanks

thank you

a. steeper; raises

b. steeper; lowers

c. flatter; raises

d. flatter; lowers

Answer 1

The correct answer is : a. steeper; raises

[ A rise in mpc means an increase in the slope of the expenditure curve and hence the latter becomes steeper.  Mpc= 0 means consumption curve becomes flat, mpc=1 means the consumption expenditure curve has 45% angle.

Since the multiplier equals 1/(1-mpc), rise in mpc means (1-mpc) becomes smaller and hence 1(1-mpc) = multiplier larger..]