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Question
If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative)
(a) greater than 2
(b) less than 2
(c) equal to 2
(d) equal to 5
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Solution
greater than 2
When MPC >MPS, then the value of multiplier will be greater than 2 because the value of the multiplier is directly related to the value of marginal propensity to consume. They both are directly related. In other words when MPC is more, k the multiplier is more and vice versa.
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