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Q110 (CAPF/2018) Economy › Basic Concepts & National Income › National income aggregates Answer Verified

. Multipliers will be lower with which one of the following?

Result
Your answer: —  Â·  Correct: B
Explanation

The Keynesian multiplier measures the total change in aggregate output resulting from a change in autonomous spending [2]. The formula for the multiplier is 1/(1 - MPC), where MPC is the marginal propensity to consume. Since the sum of MPC and the marginal propensity to save (MPS) is always equal to 1, the formula can also be expressed as 1/MPS [1]. Consequently, there is a direct relationship between MPC and the multiplier: a higher MPC leads to a larger multiplier because more income is recirculated into the economy through consumption. Conversely, a lower MPC implies a higher MPS, meaning more income 'leaks' out of the circular flow into savings. Therefore, multipliers will be lower when the marginal propensity to consume is low, as each subsequent round of spending diminishes more rapidly [1].

Sources

  1. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 4: Determination of Income and Employment > 4.4 SOME MORE CONCEPTS > p. 65
  2. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 4: Determination of Income and Employment > Some Definitions > p. 55
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