The larger the MPS,the smaller the multiplier effect.

Question

Quizplus · Accepted Answer

The multiplier effect is a phenomenon where an initial injection of spending leads to a larger increase in overall economic activity. This is because the recipients of the initial spending then have more income to spend themselves, leading to further economic activity. The size of the multiplier effect depends on the marginal propensity to consume (MPC) - the proportion of additional income that people spend rather than save. The larger the MPC, the larger the multiplier effect. Conversely, the marginal propensity to save (MPS) is the proportion of additional income that people save rather than spend. Therefore, if the MPS is larger, then the proportion of income that is spent (and therefore the multiplier effect) is smaller.

The Larger the MPS,the Smaller the Multiplier Effect