When the marginal propensity to save declines,the
A)multiplier becomes larger and the IS curve becomes flatter.
B)marginal propensity to consume increases and there is no effect on the IS curve.
C)multiplier becomes larger and the IS curve becomes steeper.
D)multiplier declines and the IS curve becomes steeper.

Question

Quizplus · Accepted Answer

When the marginal propensity to save declines, it implies that the marginal propensity to consume increases. This leads to a larger multiplier effect, as more income is being spent rather than saved, amplifying the impact of changes in investment or government spending on the overall economy. Consequently, the IS curve, which represents the relationship between interest rates and the level of income that brings the goods market into equilibrium, becomes flatter. This is because a larger multiplier means that a given change in interest rates leads to a larger change in income, hence a flatter slope.

When the Marginal Propensity to Save Declines,the