Suppose the simple multiplier is 10.What is the marginal propensity to save?
A) 1/10
B) 1/9
C) 10/9
D) 9

Question

Suppose the simple multiplier is 10.What is the marginal propensity to save?  
A) 1/10 
B) 1/9 
C) 10/9 
D) 9

Quizplus · Accepted Answer

The simple multiplier formula is:

1 / (1 - MPC)

where MPC is the marginal propensity to consume.

Since the simple multiplier is given as 10, we can use this formula to solve for the MPC as follows:

10 = 1 / (1 - MPC)
10(1 - MPC) = 1
10 - 10MPC = 1
10MPC = 9
MPC = 9/10

The marginal propensity to save (MPS) is simply:

MPS = 1 - MPC 
MPS = 1 - 9/10 
MPS = 1/10

Therefore, the answer is A) 1/10, since this is the value of the MPS given a simple multiplier of 10.

Suppose the Simple Multiplier Is 10