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UI Post-UTME Economics 2025 (Model questions) Question 9

Question 9

National Income

The multiplier effect in Keynesian economics states that:
I. An initial injection of spending generates a larger final change in national income
II. The size of the multiplier is inversely related to the marginal propensity to save
III. Higher marginal propensity to consume means a larger multiplier
IV. The multiplier only works with government spending

  1. A.I, II and III only
  2. B.I and IV only
  3. C.II and III only
  4. D.All of the above
Show the answer and explanation

Answer: A (I, II and III only)

Explanation

The multiplier = 1/MPS = 1/(1 − MPC), so a bigger MPC (smaller MPS) gives a bigger multiplier. It applies to any injection, not only government spending.