Advertisements
Advertisements
Questions
How is the investment multiplier related to marginal propensity to consume?
How is the multiplier related to marginal propensity to consume?
Briefly explain how investment multiplier is related to Marginal Propensity to Consume (MPC).
Advertisements
Solution
The investment multiplier is given by the formula
K = `1/(1 - MPC)`
= `1/(1 - c)`
where C is the marginal propensity to consume (MPC).
This means the multiplier’s value depends directly on the MPC. The greater the MPC, the higher the multiplier, and the lower the MPC, the smaller the multiplier.
APPEARS IN
RELATED QUESTIONS
What is the relation between marginal propensity to consume and multiplier?
The value of the multiplier is: (choose the correct alternative)
a. `1/"MPC"`
b. `1/"MPS"`
c. `1/(1-"MPS")`
d. `1/(MPC- 1)`
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
Define investment multiplier.
Find the value of additional investment made by the government when MPC = 0.5 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 ____________.
Keynes derived Investment Multiplier from Kahn’s ______
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 (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).
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.
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.
If a linear consumption curve takes a parallel shift downwards, the value of investment multiplier will ______.
Explain the concept of Investment Multiplier using a diagram.
