ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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0.1
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0.2
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0.3
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0.4
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Detailed explanation-1: -If investment increases from 400 to 550 and income increases from 900 to 1, 650, the MPS should be Equal to : (a) 0.1 (b) 0.2 (c) 0.3 (d) 0.4 In an economy, MPS= 0.4. National income increases by 200 crore as a result of change in investment.
Detailed explanation-2: -MPS is most often used in Keynesian economic theory. It is calculated simply by dividing the change in savings observed given a change in income: MPS = S/Y.
Detailed explanation-3: -An increase in investment by 400 crores leads to increase in national income by 1, 600 crores.
Detailed explanation-4: -MPS = 0, multiplier = infinity; MPS = . 4, multiplier = 2.5; MPS = . 6, multiplier = 1.67; MPS = 1, multiplier = 1.
Detailed explanation-5: -Therefore, when marginal propensity to consume is zero, the value of multiplier will be one. It means that increase in income will just be equal to increase in investment.