In an article saying that Americans are not saving as much asthey were 20 years

Question

In an article saying that Americans are not saving as much asthey were 20 years ago. They claim 20 years ago the average savingswas 20 percent of disposable income and predicted that it woulddrop to 5% in less than 5 years.
I need to calculate and describe the effect of changing the savingsrate on the multiplier. In an article saying that Americans are not saving as much asthey were 20 years ago. They claim 20 years ago the average savingswas 20 percent of disposable income and predicted that it woulddrop to 5% in less than 5 years.
I need to calculate and describe the effect of changing the savingsrate on the multiplier.

Explanation / Answer

Well, the Keynesian multiplier is 1/1-MPC where MPC is the marginalpropensity to consume, or in certain cases 1-MPC is also the MPS,or the marginal propensity to save. You see that as MPS decreases,the denominator decreases and thus the multiplier is bigger. Thisis the same as thinking if MPC went up (people had a higherpropensity to consume), which will go on to affect the multiplierby increasing it.

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