If people decide to save a greater percentage of their incomes,then the value of the spending multiplier will ________ and changes in government spending will have ________ impact on gross domestic product (GDP).

Question

Quizplus · Accepted Answer

When people save a greater percentage of their incomes, the multiplier effect decreases. The spending multiplier is inversely proportional to the marginal propensity to save. Therefore, if people save more, the multiplier will decrease. As a result, changes in government spending will have a smaller impact on GDP. Hence, option B is the correct answer.

If People Decide to Save a Greater Percentage of Their