If the marginal propensity to consume (MPC)decreases, then
A)the marginal propensity to save (MPS)decreases.
B)the multiplier decreases.
C)the multiplier increases.
D)MPC + MPS is less than 1.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC). If MPC decreases, then 1-MPC increases, resulting in a smaller multiplier. Therefore, option B (the multiplier decreases) is the best choice. Option A (the MPS decreases) is incorrect because the MPC and MPS must always add up to 1, so if MPC decreases, then MPS must increase. Option C (the multiplier increases) and D (MPC + MPS is less than 1) are both incorrect for the same reason - if MPC decreases, then the sum of MPC and MPS must still equal 1, so the multiplier cannot increase and MPC + MPS cannot be less than 1.

If the Marginal Propensity to Consume (MPC)decreases, Then