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CISCEISC (Arts) Class 12
प्रश्न पत्र३७९
पाठ्यपुस्तक उत्तर१६६८१
महत्वपूर्ण प्रश्न एवं उत्तर६२९२
अवधारणा स्पष्टीकरण और वीडियो९५८
समय सारणी१६
पाठ्यक्रम

Assumptions of Multiplier

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Estimated time: 8 minutes
  • Assumptions with Real Life Examples
  • Key Points: Assumptions of Multiplier
CISCE: Class 12

Assumptions with Real Life Examples

  Assumption (short) Simple example/analogy
1 Only autonomous investment changes (no induced investment) The government announces a one-time ₹500 crore dam project. This decision is taken independently, not because people’s incomes have already started rising. The dam project is the “first stone” thrown into the pond.
2 MPC is constant A worker always spends 80 paise from every extra ₹1 earned, whether the bonus is ₹1,000 or ₹10,000. The spending rule “spend 80%, save 20%” never changes from round to round.
3 Consumption depends only on current income A teacher gets a ₹5,000 salary hike this month and immediately raises monthly spending by ₹4,000, just based on the new salary. She does not wait for next year’s promotion or think about past savings.
4 No time lags in the process Construction workers are paid today, they go to the market the same day, shopkeepers instantly restock and pay their suppliers, and suppliers pay their workers immediately. There is no gap between earning and spending in any round.
5 A new level of investment is maintained The government fully funds a 3‑year highway project without stopping or cutting the budget midway. Every month, the same amount of construction spending continues until the road is completed.
6 There is a net increase in investment A new hospital is being built in a city that previously had only one. This is an additional hospital, not just repairing or replacing the old one. Total health infrastructure in the city actually increases.
7 Consumer goods are available When workers earn more, shops have enough rice, clothes, mobiles, etc., in stock. If 1,000 workers walk into markets to spend their extra income, they all find the goods they want without stock‑outs.
8 Other production resources are easily available A biscuit factory that wants to increase output can easily hire more workers, buy more flour, sugar and oil, and rent extra machinery. None of these inputs is in serious shortage.
9 Surplus capacity in consumer goods industries A biscuit factory currently operates only one shift (8 hours). When demand rises, it simply adds a second shift using existing machines and idle workers, so output can increase quickly.
10 The economy is industrialised In an industrial economy, a garment factory can double shirt production within weeks by running more shifts. In a mostly agricultural economy, increasing wheat production may take a whole cropping season, so the response is slow.
11 Prices remain constant A loaf of bread costs ₹40 before and after the multiplier process. When income rises, people buy more loaves, but the price per loaf does not rise, so all extra money translates into more quantity, not higher prices.
12 Closed economy (no foreign trade) A self‑sufficient island where every rupee earned and spent stays within the island. When people buy clothes or phones, they are always made locally; no money leaves the island to pay foreign producers.
13 Less than full employment (idle resources exist) Many construction workers are unemployed in a city. A new metro project hires them. These workers were sitting idle earlier; now they produce extra output and earn income, so total real output in the economy rises.
14 Accelerator effect ignored (no extra induced investment from higher consumption) A shop’s sales increase because people have higher income, but in the simple model we pretend the shop owner does not respond by opening a new branch or expanding the shop. Only the original investment (e.g., road project) is considered.
CISCE: Class 12

Key Points: Assumptions of Multiplier

  • Only autonomous investment changes; induced investment is absent.
  • MPC is constant and consumption depends on current income.
  • No time lag in the multiplier process; investment remains constant.
  • Economy is closed, industrialised, and operates at less than full employment.
  • Prices remain constant and resources, consumer goods, and surplus capacity are available.

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