Question

The larger the marginal propensity to save,

Group of answer choices

a.both answers are correct.

b.both answers are incorrect

c.the smaller the multiplier.

d.the larger the multiplier.

Answer 1

Multiplier effect is the Increase in final income due to injection of spending

The size of Multiplier depends upon marginal propensity to consume and .Marginal propensity to save.

We know that, Marginal propensity to consume(MPC) plus marginal propensity to save (MPS) equals 1.

Mathematically,

Multipler = 1/(1- MPC)

= 1/MPS

The above equation shows that there is an inverse relationship between the multiplier and Marginal propensity to save.

Thus, larger the marginal propensity to save, less the size of the multiplier

Therefore, the correct answer is Option C.

Option A is incorrect because the value of the multiplier can't large and small at the same time.

Option B is incorrect because the correct answer is Option C.

Option D is incorrect because the value of Multiplier will be larger if the value of Marginal propensity to save will be less .