Question

If a linear consumption curve takes a parallel shift downwards, the value of investment multiplier will ______.

Options

• fall

• rise

• be doubled

• not change

Answer 1

If a linear consumption curve takes a parallel shift downwards, the value of investment multiplier will not change.

Explanation:

If the linear consumption curve shifts downward in parallel, there is a change in autonomous consumption but no change in MPC. The investment multiplier is solely determined by MPC. If the MPC does not change, the investment multiplier does not change.