Question

In what way the multiplier is related to MPS ?

Answer 1

The multiplier effect is the magnified increase in equilibrium GDP that occurs when any component of aggregate expenditures changes. The greater the MPC (the smaller the MPS), the greater the multiplier. MPS = 0, multiplier = infinity; MPS = . 4, multiplier = 2.5; MPS

Answer 2

The multiplier is related to MPS is as follows:

• The Relationship Between Consumption Propensity and Investment Multiplier: MPS is multiplied by the multiplier.
• MPS = 1 – MPC is a well-known formula.
• As a result, MPS and the investment multiplier have a close relationship.
• The multiplier can be expressed as follows: m = 1/MPS = 1/1-MPC
• The multiplier's numerical value will increase as the MPC increases.