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Which of the following statements is true? -

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Question

Which of the following statements is true?

Options

  • Value of multiplier will be zero of entire additional income consumption is converted into additional consumption.

  • Value of multiplier will be infinity of entire additional income consumption is converted into additional consumption.

  • Value of multiplier will be unitary of entire additional income consumption is converted into additional consumption.

  • Value of multiplier cannot be determined of entire additional income consumption is converted into additional consumption.

MCQ

Solution

Value of multiplier will be infinity of entire additional income consumption is converted into additional consumption.

Explanation:

ΔY = ΔC

MPC = `(Δ"C")/(Δ"Y")`

MPC = `(Δ"C")/(Δ"C")` = 1

MPC = 1 − MPC = 0

K = `1/"MPS"`

= `1/0`

= ∞

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Aggregate Demand and Its Components - Consumption
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