The larger the marginal propensity to save, the smaller the multiplier.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. Thus, if the MPC is smaller, the denominator will be smaller, leading to a larger multiplier. However, if the MPS (marginal propensity to save) is larger, then 1-MPC will be smaller, leading to a smaller denominator and a smaller multiplier. Therefore, the statement is true.

The Larger the Marginal Propensity to Save, the Smaller the Multiplier