-Refer to Exhibit 10-9.What is the value of the marginal propensity to save (MPS)that would correctly fill in blank (A)and the multiplier that would correctly fill in blank (B)?
A) 0.20; 5
B) 0.08; 8
C) 0.08; 12.5
D) 0.05; 0.95

Question

-Refer to Exhibit 10-9.What is the value of the marginal propensity to save (MPS)that would correctly fill in blank (A)and the multiplier that would correctly fill in blank (B)?
A) 0.20; 5 
B) 0.08; 8 
C) 0.08; 12.5 
D) 0.05; 0.95

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of additional income that is saved. In this case, the MPS is 0.08, which means that for every additional dollar of income, 8 cents are saved. The multiplier is the number by which an initial change in spending will be multiplied to determine the total change in spending. In this case, the multiplier is 12.5, which means that an initial change in spending of $1 will lead to a total change in spending of $12.50.