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Created 3/10/1998
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The Size of the Multiplier and the Marginal Propensity to Consume

J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net


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    


Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

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