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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`
= ∞
shaalaa.com
Aggregate Demand and Its Components - Consumption
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