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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 _______________.

equal to 5

greater than 2

less than 2

equal to 2

Solution:

If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be greater than 2. When MPC > MPS, then the value of multiplier will be greater than 2 because the value of 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.