A $20 billion decrease in investment in a private closed economy that has an MPS of .5 will reduce saving by $10 billion once the multiplier process has ended.

Question

Quizplus · Accepted Answer

The calculation for the change in saving due to a decrease in investment is: 
$20 billion * MPS = $10 billion 
However, the statement says "once the multiplier process has ended." This implies that there is a multiplier effect on savings, which means that the decrease in investment will lead to further reductions in spending and income. Therefore, the ultimate decrease in savings will be greater than $10 billion.

A $20 Billion Decrease in Investment in a Private Closed