The smaller the marginal propensity to consume
A) the smaller the marginal propensity to save is.
B) the smaller the multiplier is.
C) the large the multiplier is.
D) the smaller autonomous consumption is.

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the proportion of extra income that is spent rather than saved. If the marginal propensity to consume (MPC) is small, then the marginal propensity to save (MPS) is higher (since MPS + MPC = 1). A smaller MPC implies that a greater proportion of an increase in income is saved, meaning that the total impact on aggregate demand is smaller, resulting in a smaller multiplier. So, the correct choice is B, which states that the smaller the MPC, the smaller the multiplier is.

The Smaller the Marginal Propensity to Consume