Other things constant, how would a smaller marginal propensity to save affect the multiplier?
A) The multiplier would increase.
B) The multiplier would remain the same.
C) The multiplier would become smaller.
D) The multiplier would be negative.

Question

Other things constant, how would a smaller marginal propensity to save affect the multiplier?  
A) The multiplier would increase. 
B) The multiplier would remain the same. 
C) The multiplier would become smaller. 
D) The multiplier would be negative.

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), where MPC is the marginal propensity to consume. A smaller marginal propensity to save means a larger marginal propensity to consume, which would result in a larger value for the multiplier. Therefore, option A is correct.

Other Things Constant, How Would a Smaller Marginal Propensity to Save