Answer:
As MPC increases, the multiplier increases
So as MPS increases the multiplier decreases.
Explanation:
The the expenditure multiplier is the amount by which the aggregate output would increase with an increase in any of the expenditure components.
It is calculated as follows;
Multiplier = 1/(1-MPC)
For example, MPC of 0.6 and 0.8 would produce multipliers of
2.5 and 5 respectively.
Therefore as MPC increases, the multiplier increases
On the other hand, the MPS is the 1- MPS, looking at the same equation, the multiplier is equal to
Multiplier = 1/MPS.
Therefore, MPS of 0.3 and 0.4 would produce the 3.33 and 2.5 respectively.
So as MPS increases the multiplier decreases.
