An MPC equal to 0 implies a multiplier of 1, meaning that a $1 increase in autonomous expenditures would increase real GDP by only $1. Why does an MPC of 0 result in no multiplier effect? Explain your answer using the logic of the multiplier process.
A. When the MPC is 0, any additional income does not induce any additional consumption spending.
B. An MPC of 0 means that any additional income induces a matching increase in consumption spending, which leads to a matching increase in income, and so on.
c. An MPC equal to 0 indicates that consumers are drawing more from their savings in order to increase consumption.
D. When the MPC is 0, any additional income does not induce any additional saving by households.
Conversely, an MPC equal to 1 implies an infinite multiplier, meaning that a $1 increase in autonomous expenditures would increase real GDP by an infinite amount.
Why does an MPC of 1 result in an infinite multiplier? Explain your answer using the logic of the multiplier process
A. When the MPC is 1, any additional income does not induce any additional saving by households
B. When the MPC is 1, any additional income does not induce any additional consumption spending.
C. An MPC of 1 means that any additional income induces a matching increase in consumption spending, which leads to a matching increase in income, and so on.
D. An MPC equal to 1 ignores real-world complications and as such overstates the true value of the multiplier.
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