Can the spending multiplier be smaller than one? Why?

Can the spending multiplier be smaller than one? Why?

 

Answer:

Spending multiplier measures the effect of increases or decreases in government spending from change in GDP. And since Spending Multiplier can be calculated by 1/MPS = 1/(1-MPC)

Therefore, whenever MPC is negative, spending multiplier can be smaller than one.

Asked on February 15, 2018 in economics.
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