Question

Value of MPS (Marginal Propensity to Save) is increased from 0.4 to 0.5. What would be the impact on Multiplier ?

• A. The size of the multiplier would be increased
• B. The size of the multiplier would remain the same
• C. Value of multiplier is undetermined
• D. The size of the multiplier would be decreased

Answer 1

Answer: (D)

The size of the multiplier would be decreased

Answer 2

The multiplier is inversely related to MPS, so an increase in MPS leads to a decrease in the multiplier (Multiplier = $\frac{1}{MPS}$).