ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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greater than 2
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less than 2
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equal to 2
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equal to 5
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Detailed explanation-1: -When MPC >MPS, then the value of multiplier will be greater than 2 because the value of multiplier is directly related to the value of marginal propensity to consume. They both are directly related. In other words when MPC is more, k the multiplier is more and vice versa. Was this answer helpful?
Detailed explanation-2: -When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.
Detailed explanation-3: -Marginal Propensity to consume refers to the ratio between the percentage change in consumption for every one rupee of change in the income. Therefore, it cannot be more than one as it is percentage change in consumption when there is some change in the level of income which cannot be more than the change in income.
Detailed explanation-4: -Hence, the value of the multiplier is two.
Detailed explanation-5: -If MPC increases, the value of multiplier will increase.