Discussion
As Marginal Propensity to Save (MPS) increases, the value of multiplier would :
Answer: D
As MPS increases, the multiplier would fall.
The simple investment multiplier is the reciprocal of the marginal propensity to save:
\[ k = \frac{1}{1 - MPC} = \frac{1}{MPS} \]
A larger MPS means more of each round of extra income leaks into saving, so less is re-spent and the total expansion is smaller. For example, an MPS of 0.2 gives k = 5, while 0.25 gives k = 4. The multiplier does not rise, stay constant or depend on the size of the investment change.
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