Which of the following must be true to have a closed economy with no government,...
ECONOMICS
JAMB 2023
Which of the following must be true to have a closed economy with no government, and yet the value of the investmet multiplier still increase?
- A. Marginal propensity to save has fallen
- B. Actual investment had fallen
- C. Average propensity to invest has fallen
- D. Actual saving has fallen
Correct Answer: A. Marginal propensity to save has fallen
Explanation
Investment multiplier (K) is a function of two factors; The MPS and MPC. If MPC is high, K will also be high but if MPC is low, K will also be low. on the other hand, If MPS is high, K will be low and if MPS is low, K will be high ( since there is an inverse relationship between MPS and K).
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