Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

"Higher the value of marginal propensity to save, higher will be the multiplier"
Which of the following options is true in regards to the above statement?

Options:

The statement is true

The statement is false

The statement is partially true

Can't say anything about the statement

Correct Answer:

The statement is false

Explanation:

Higher the value of MPC i.e. marginal propensity to consume, higher will be the multiplier and Higher the value of MPS i.e. marginal propensity to save, lower will be the multiplier. 

For example: MPS= 0.2

k=\(\frac{ 1}{ MPS}\)

i.e. k= 5

where k stands for multiplier.

Now as MPS increases i.e. MPS= 0.5

k=\(\frac{1 }{ MPS}\)

i.e. k= 2

Which shows that as MPS increases, value of multiplier decreases.