JAMB Economics 2023 Paper

Concept:For a closed economy with no government, the investment multiplier is $k = \frac{1}{MPS}$, where $MPS$ is the marginal propensity to save.Explanation:The multiplier $k$ shows how much national income changes when investment changes.Since $MPC + MPS = 1$, the multiplier is also written as $k = \frac{1}{1-MPC}$.To make the multiplier $k$ increase, the denominator $1-MPC$ must decrease.A smaller $MPS$ means $1-MPC$ is smaller, so $k$ becomes larger.Thus, the value of the multiplier increases only when the marginal propensity to save falls.Changes in actual investment or actual saving do not increase the multiplier formula.Answer:A. Marginal propensity to save has fallen.