"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?
Answer & explanation
Correct answer: option 2
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.