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Question
If a linear consumption curve takes a parallel shift downwards, the value of investment multiplier will ______.
Options
fall
rise
be doubled
not change
Solution
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.
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