Question

When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.

• A. True
• B. False

Answer 1

The correct option is B False

False.

If MPC = 0.6, then MPS = 0.4 but

Multiplier (k) = 1/MPS = 1/0.4 = 2.5.

So even if the value of MPC is greater than MPS then also multiplier is smaller than 5.