Question

1. The marginal propensity to consume I. has a negative relationship to the multiplier. II. is equal to 1. III. represents the proportion of consumers’ disposable income that is spent. a. I only b. II only c. III only d. I and III only e. I, II, and III 2. Assume that taxes and

Answer 1

Answer: c. III only

Explanation:

The marginal propensity to consume (mpc) measures the proportion of a consumers income that is spent.

The marginal propensity to save (mps) measures the proportion of a consumers income that is saved.

It is usually assumed that disposable income is either saved or spent, so mps + mpc = 1

The multiplier is measured as : 1 / MPS or 1 / (1-MPC)

the MPC has a positive relationship with the multiplier.