Explanation:

When discussing the relationship between MPC (Marginal Propensity to Consume) and the multiplier effect, it is important to understand the concept of the multiplier effect itself. The multiplier effect refers to the phenomenon where an initial change in autonomous spending leads to a larger overall change in aggregate demand and output.

Understanding the Multiplier Effect:

The multiplier effect occurs due to the interplay between consumption and income. When individuals receive additional income, they tend to spend a portion of it on consumption. This spending then becomes income for others, who in turn spend a portion of it, and so on. This cycle continues, creating a ripple effect that amplifies the initial change in spending.

Relationship between MPC and the Multiplier:

The MPC is the proportion of additional income that individuals choose to spend on consumption. It represents the change in consumption due to a change in income. The multiplier, on the other hand, represents the overall change in output resulting from the initial change in spending.

Increase in MPC:

When the MPC increases, it means that individuals are more willing to spend a larger proportion of their additional income on consumption. This leads to a greater injection of spending into the economy, which in turn increases the overall level of output. As a result, the multiplier effect becomes stronger.

Explanation of the Correct Answer:

Option A, which states that the value of the multiplier will increase when the MPC increases, is the correct answer. An increase in the MPC means that a larger proportion of additional income will be spent on consumption, leading to a stronger multiplier effect. This is because the initial change in spending will result in a larger overall increase in aggregate demand and output.

It is important to note that the increase in the value of the multiplier may not be exactly equal to the increase in the MPC. The exact magnitude of the multiplier effect depends on other factors such as leakages (savings and taxes) and the overall structure of the economy. However, in general, an increase in the MPC will lead to a larger multiplier effect and a greater overall increase in output.