Question

In the multiplier formula \[K=\frac{1}{s}\], the symbol s denotes:

Options

• The initial autonomous expenditure

• The Marginal Propensity to Consume (MPC)

• The Marginal Propensity to Save (MPS), equal to 1 − c

• The total equilibrium output

Answer 1

s is the Marginal Propensity to Save (MPS), defined as \[s = 1 - c\] where c is the MPC. Since every extra unit of income is either consumed or saved, \[K=\frac{1}{1-c}=\frac{1}{s}\]. A higher s therefore means a smaller multiplier.