As the MPS increases, the multiplier will
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease depending on the size of the change in investment.

Question

Quizplus · Accepted Answer

The multiplier is inversely related to the Marginal Propensity to Save (MPS). As MPS increases, it means that people are saving more and spending less of each additional unit of income, which leads to a decrease in the multiplier effect. The multiplier formula, 1/(1-MPC) or 1/MPS, illustrates this inverse relationship.

As the MPS Increases, the Multiplier Will