Exhibit 9-9
-The larger the marginal propensity to save,other things constant,
A)the smaller the marginal propensity to consume
B)the larger the marginal propensity to consume
C)the larger the multiplier
D)the steeper the consumption function
E)the flatter the saving function

Question

Exhibit 9-9 
-The larger the marginal propensity to save,other things constant,
A)the smaller the marginal propensity to consume 
B)the larger the marginal propensity to consume 
C)the larger the multiplier 
D)the steeper the consumption function 
E)the flatter the saving function

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of each additional dollar of income that is saved instead of spent. If the MPS is larger, it means that a larger proportion of each additional dollar of income is saved, leaving a smaller proportion available for consumption. This implies a smaller marginal propensity to consume (MPC), as the total of MPC and MPS must equal 1. Therefore, A is the correct answer. The multiplier depends on both the MPC and MPS, and it is given by 1/(1-MPC) or 1/MPS, so it is larger when the MPS is smaller. The steepness of the consumption function and the flatness of the saving function depend on the slope of each curve, which are related to the MPC and MPS, respectively. However, these properties are not directly related to the MPS, so choices D and E are incorrect.

Exhibit 9-9 -The Larger the Marginal Propensity to Save,other Things Constant