Test Index

JAMB Economics 2016 Paper

Question : 40

Total: 49

If the marginal propensity to save is 0.8, calculate the multiplier?

1.25
5.00
1.30
2.25

Solution:

Concept:

The multiplier is the number of times an initial injection of spending increases total national income. It depends on the marginal propensity to save.

Explanation:

The multiplier formula using the marginal propensity to save (

MPS

) is:

\text{Multiplier} = \frac{1}{MPS}

Given:

MPS = 0.8

Substitute into the formula:

\text{Multiplier} = \frac{1}{0.8} = 1.25

This means every

1.00

of new spending eventually raises national income by

1.25

Answer:

1.25

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