Question 1
Suppose that input prices respond very quickly to output price. This will
◦ reduce the value of the multiplier.
◦ increase the value of the multiplier.
◦ have no effect on the value of the multiplier.
◦ either increase or decrease the value of the multiplier depending on the value of the
MPC.
Question 2
In practice, the size of the multiplier is about
◦ 1.
◦ 1.4.
◦ 2.5.
◦ 3.