Discuss and explain what effect a reduction in the marginal propensity to consume has on the size of the multiplier
What will be an ideal response?
A reduction in the marginal propensity to consume will cause a reduction in the multiplier. When firms increase production in response to some initial change in demand, households will increase their consumption by a smaller amount when the mpc falls. So, the income-induced change in demand will be that much smaller causing a smaller multiplier effect.
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