If the marginal propensity to save (MPS) in a country is 0.1, then any increase in autonomous expenditure would multiply output in the economy by 10.

Question

Quizplus · Accepted Answer

The multiplier formula is 1/(1-MPC), where MPC is the marginal propensity to consume (which is 1-MPS). Therefore, if MPS is 0.1, then MPC is 0.9 and the multiplier is 1/(1-0.9) = 10. This means that any increase in autonomous expenditure (such as government spending or investment) will be multiplied by 10 in the economy's total output.

If the Marginal Propensity to Save (MPS) in a Country