The larger the marginal propensity to save, the smaller the multiplier is.

Question

Quizplus · Accepted Answer

The marginal propensity to save is the portion of an additional dollar of income that is saved rather than spent. The multiplier represents the effect of a change in spending on the economy as a whole. If the marginal propensity to save is high, it means that households and individuals are saving a larger portion of their income and spending less. This means that the effect of any increase in spending will be smaller because there is less overall spending in the economy. Therefore, the larger the marginal propensity to save, the smaller the multiplier is.

The Larger the Marginal Propensity to Save, the Smaller the Multiplier