Question

If consumers decided to save a higher percentage of their disposable income, the value of the spending multiplier would decrease.

	A.	True
	B.	False

Answer 1

Answer:
TRUE

reason: Spending multiplier is calculated as 1/ (1-MPC). If MPC is lower, that is, if consumers spend less part of their disposable income, then the value of multiplier is lower.
For example, if consumers spend 20% of their income (MPC is 0.2), then, multiplier = 1/(1-0.2) =1.25.
if consummers spend half of their disposable income, multiplier = 1/(1-0.5) = 2.
Thus we see that the more the consumer spending, the higher the value of spending multiplier.