SECTION A MACRO

Question 1

Explain the likely effect of a fall in the marginal propensity to save on the value of the multiplier if other things remain equal. [2 marks]

Answer 1

The value of the multiplier is likely to increase (1), due
a decrease in withdrawals (1).

Question 2

Explain one possible reason for the fall in the marginal propensity to save. [2 marks]

Answer 2

The decrease in the MPS reflects a rise in the marginal propensity to consume (1) due to rising consumer confidence (1)
Decrease in MPS due to rise in marginal propensity to tax (1) to reduce the budget deficit. (1)
Low interest rates (1) reducing the incentive to save/lower rate of return (1)