✓ Board-verified
Economics · 2022 · 5 marks
Determination of Income and EmploymentDetermination of Income in Two-sector Model5 marksApplylong answer
CBSE 2022 · Region 5 · Set 1 · Q11
'Investment multiplier and Marginal Propensity to Consume are directly related to each other.' Explain with the help of numerical example.
'Investment multiplier and Marginal Propensity to Consume are directly related to each other.'
Explain with the help of numerical example.
Marking-scheme solution
Investment multiplier (K) and Marginal Propensity to Consume (MPC) are directly related.Now, suppose the value of MPC = $\displaystyle 0$·$\displaystyle 6$Then, the value of $\displaystyle K = \frac{1}{1 - \text{MPC}} = \frac{1}{1 - 0\cdot 6} = \frac{1}{0\cdot 4} = 2.5$If the value of MPC changes from $\displaystyle 0.6$ to $\displaystyle 0.8$ then,the value of $\displaystyle K = \frac{1}{1 - 0\cdot 8} = \frac{1}{0\cdot 2} = 5$Thus, it is clear from illustration mentioned above that there exists direct relation between MPC and investment multiplier. As MPC increases the value of investment multiplier also increases.
All Determination of Income and Employment questions2022 question paperPractice Determination of Income and Employment →
More from Determination of Income and Employment
- At the break-even point level of incomes for the economy is ₹ 10,000 crores and if the people tends to save 20 per cent of their additional income,…2022
- Calculate the Equilibrium level of Income for an imaginary economy, if it is given that: Saving function, S = (–)500 + 0·2 Y where S = Savings, Y =…2022
- State and discuss any one component of Aggregate Demand in a two-sector economy.2022
- 'Investment multiplier and Marginal Propensity to Save are indirectly related to each other.' Explain with the help of numerical example.2022
- Assuming for a hypothetical economy, the following data is given: Income (Y) Consumption Investment (I) Aggregate Demand (AD) 0 20 20 40 100 100 20 –…2026
- “In an economy, ex-ante Aggregate Supply is more than ex-ante Aggregate Demand.” Explain its impact on the level of output, income and employment. OR…2024
- Identify which of the following equations is true. (Choose the correct alternative)2023
- Suppose in an economy, planned spendings are greater than planned outputs. Identify the correct option with respect to effects on the economy: (i)…2025
CBSE Class 12 Economics past-paper question from the 2022 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.