The reciprocal of the marginal propensity to save is called the
A) multiplier.
B) propensity to consume.
C) saving function.
D) 45-degree line.
E) interest rate.

Question

Quizplus · Accepted Answer

The reciprocal of the marginal propensity to save is the multiplier, which represents the amount by which an initial change in expenditures will ultimately change aggregate income. This is because the multiplier is the inverse of the marginal propensity to save, which is the fraction of each additional dollar of income that is not spent on consumption. Therefore, the multiplier measures the potential impact of any given change in spending on the overall economy.

The Reciprocal of the Marginal Propensity to Save Is Called