Simple Multiplier - MCQ Revision Question

Here is a calculation question drawing on the simple multiplier used for a closed economy with no government. In this (limiting) case, the only leakage from the circular flow is savings. Once we know the value of the marginal propensity to save, we can deduce the value of the marginal propensity to consume.

Key concept: Marginal propensity to save

The change in total savings arising from a small change in household disposable income. If income rises by £100 and £30 is saved, then the marginal propensity to save = 0.3 (i.e. the change in saving/change in income)