If the marginal propensity to save decreases,the multiplier will increase.

Question

Quizplus · Accepted Answer

The multiplier is the amount by which an initial change in autonomous expenditure (such as government spending or investment) is magnified through the economy as a result of induced changes in consumption, investment, and net exports. The formula for the multiplier is 1/(1-MPC), where MPC is the marginal propensity to consume. Therefore, if the marginal propensity to save decreases, the MPC increases and the denominator in the multiplier formula decreases, making the multiplier larger.

If the Marginal Propensity to Save Decreases,the Multiplier Will Increase