Question

"The size of multiplier varies directly with the size of the MPC". Defend or refute.

Answer 1

Multiplier(K)= 1/ (1- MPC) = 1 / (1 - Change in consumption/ change in income)

= change in income/ change in income- change in consumption

= change in income/ change in savings

= change in income/ change in investment

So, the value of the multiplier and MPC are directly related as the change in consumption in respect to a given change in income becomes the change in investment which keeps on rotating unless the income becomes zero.