Exhibit 9-9
-The simple multiplier equals
A)the marginal propensity to consume
B)the marginal propensity to save
C)the reciprocal of the marginal propensity to save
D)the reciprocal of the marginal propensity to consume
E)one minus the marginal propensity to consume

Question

Exhibit 9-9 
-The simple multiplier equals
A)the marginal propensity to consume 
B)the marginal propensity to save 
C)the reciprocal of the marginal propensity to save 
D)the reciprocal of the marginal propensity to consume 
E)one minus the marginal propensity to consume

Quizplus · Accepted Answer

The simple multiplier equals the reciprocal of the marginal propensity to save. This is because the multiplier is the amount by which an initial change in spending or investment is multiplied to determine the total impact on the economy. When individuals save a portion of their income, this reduces the initial change in spending and therefore reduces the multiplier effect. The reciprocal of the marginal propensity to save accounts for this reduction and gives us the multiplier.

Exhibit 9-9 -The Simple Multiplier Equals