J. Bradford DeLong
The size of the multiplier depends on the marginal propensity to consume: the higher the marginal propensity to consume, the higher the multiplier.
A higher marginal propensity to consume means that a larger share of any increase in incomes is then spent on consumption. A higher marginal propensity to consume means that the aggregate demand line--the line representing total spending as a function of income--is steeper.
A steeper aggregate demand line means that even a small upward (or downward) shift in it will have a large effect on where it crosses the 45 degree income-expenditure line, and thus a large effect on national income. This is what we call a large value of the multiplier.
|Income-Expenditure Diagram The Multiplier Stepping Through the Multiplier|
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