Question

Does multiplier become more stable or unstable during recession? Why

Answer 1

The size of the multiplier depends upon household's marginal decisions to spend or consumption levels in the economy which depends on the marginal propensity to consume (mpc), or to save, called the marginal propensity to save (mps) . It is the amount of increase in consumption due to 1 dollar rise in income .

Availability of liquid money , consumer confidence and taxation affect the MPC . During a recession consumer confidence , income and credit all fall . There is unemployment and less production . Thus the MPC becomes unstable . People are unsure about their expenditure decisions . So multiplier become more unstable .