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प्रश्न
Explain the relationship between the investment multiplier and marginal propensity to consume.
Give the relationship between the multiplier and marginal propensity to consume.
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उत्तर
Investment multiplier implies that any change in the investment leads to a corresponding change in the income and output by multiple times. That is, in other words, the change in the income and output is more than (or multiple times of) the change in investment.
Investment Multiplier, K = `(ΔY)/(ΔI)`
Investment Multiplier shares a direct positive relationship with marginal propensity to consume. That is, higher the value of MPC, higher will be the value of investment multiplier and vice versa.
Algebraically, the relationship is expressed as follows.
`K=1/(1-MPC)`
Suppose, the value of MPC is 0.5 then,
`K=1/(1-0.5)=2`
Now, if the value of MPC rises to 0.8 then,
`k=1/(1-0.8)=5`
Thus, as the value of MPC rises from 0.5 to 0.8, the value of investment multiplier rises from 2 to 5. This confirms the direct positive relation between MPC and investment multiplier.
संबंधित प्रश्न
Define multiplier
What is the relation between marginal propensity to consume and multiplier?
Calculate the marginal propensity to consume if the value of multiplier.
If MPC = 1, the value of the multiplier is ______
If MPC = 0, the value of the multiplier is: (Choose the correct alternative)
a. 0
b. 1
c. Between 0 and 1
d. Infinity
Calculate the marginal propensity to consume if the value of multiplier is 4.
Define investment multiplier.
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 ____________.
Keynesian multiplier establishes a relationship between ______
Keynes derived Investment Multiplier from Kahn’s ______
Discuss the mechanism of investment multiplier with the help of a numerical.
The value of multiplier is ______
Which of the following statements is true?
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from 80% to 90% and change in investment to be ₹ 1000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume.
If a linear consumption curve takes a parallel shift downwards, the value of investment multiplier will ______.
Illustrate that the investment multiplier is inversely proportional to MPS.
