If the multiplier is 20 and income increases by $1000, then saving will increase by
A) $80.
B) $800.
C) $200.
D) $1000.

Question

Quizplus · Accepted Answer

The multiplier is the reciprocal of the marginal propensity to save (MPS). If the multiplier is 20, then MPS is 1/20 or 0.05. Therefore, if income increases by $1000, saving will increase by 5% of $1000, which is $50. However, since the options do not include $50, the closest logical choice is $200, assuming a mistake in the options.

If the Multiplier Is 20 and Income Increases by $1000