Question

If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be:

Options

• greater than 2

• less than 2

• equal to 2

• equal to 5

Answer 1

greater than 2

Explanation:

MPC = 0.6

MPS = 0.4

K = `1/"MPS"`

= `1/(1- "MPC")`

= `1/0.4`

= 2.5