ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The multiplier effect is the magnified increase in equilibrium GDP that occurs when any component of aggregate expenditures changes. The greater the MPC (the smaller the MPS), the greater the multiplier.

Detailed explanation-2: -"When MPC is equal to MPS, increase in income will be two times the increase in investment’. Comment. Q. MPC = 0.75 and as a result of Multiplier Effect, National Income Increased by Rs.

Detailed explanation-3: -The magnitude of the multiplier is directly related to the marginal propensity to consume (MPC), which is defined as the proportion of an increase in income that gets spent on consumption. For example, if consumers save 20% of new income and spend the rest, then their MPC would be 0.8 (1-0.2).

Detailed explanation-4: -A high MPC indicates that the proportion of increased income spent on goods and services approached the actual amount of that increase. Conversely, a low MPC means an individual spent less of that increase in income and instead, put the money into savings.

Detailed explanation-5: -In Keynesian macroeconomic theory, the marginal propensity to consume is a key variable in showing the multiplier effect of economic stimulus spending. Specifically, it suggests that a boost in government spending will increase consumer income, and in turn, consumer spending will rise.