APFIVE MPC MPS and the Spending Multiplier
All of the following statements regarding Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) are true except:
A
The sum of MPC and MPS is always greater than 1 because of the multiplier effect.
B
By definition, MPC + MPS = 1 for any additional unit of disposable income.
C
A higher MPC leads to a larger spending multiplier effect because households spend more of each additional dollar.
D
An increase in MPS diminishes the size of the spending multiplier since a greater portion of income is saved.
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