Advertisements
Advertisements
Question
For a hypothetical economy, assuming there is an increase in the marginal Propensity to Consume (MPC) from 75% to 90% and change in investment to be ₹ 1,000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume (MPC).
Solution
`"Multiplier" (k) = (1/(1-MPC))=1/(1-0.80) = 1/0.20 = 5`
`"We also know K" = "Changes in Income (ΔY)"/"Change in Investment (Δl)"`
Given:
Change in Investment (Δl) + Rs. 1000 cr or es
`5 = ("Change in Income" (ΔY))/1000`
Change in Income (ΔY) = Rs. 5,000 crore
RELATED QUESTIONS
Define multiplier
Calculate the marginal propensity to consume if the value of multiplier.
If MPC = 1, the value of the multiplier is ______
Calculate the marginal propensity to consume if the value of multiplier is 4.
Define investment multiplier.
Explain the relationship between investment multiplier and marginal propensity to consume.
Answer the following question.
Find the value of additional investment made by the government, when MPC 05 and the increase in income (ΔY) = ₹ 1000.
Suppose in an economy, the initial deposits of ₹ 400 crores lead to the creation of total deposits worth ₹ 4000 crores.
Under the given situation the value of reserve requirements would be ____________.
The value of Keynesian Investment Multiplier depends on ______
Discuss the mechanism of investment multiplier with the help of a numerical.
The formula of investment multiplier in terms of MPS is (1)
The value of multiplier is ______
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume from 80% to 90% and change in investment to be ₹ 2000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume.
Explain the concept of Investment Multiplier using a diagram.
Illustrate that the investment multiplier is inversely proportional to MPS.
