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Economics · 2022 · 5 marks
Determination of Income and EmploymentDetermination of Equilibrium Income in the Short Run5 marksApplylong answer
CBSE 2022 · Region 5 · Set 2 · Q11
'Investment multiplier and Marginal Propensity to Save are indirectly related to each other.'
Explain with the help of numerical example.
Marking-scheme solution
Investment multiplier (K) and Marginal Propensity to Save (MPS) are inversely related.Suppose, the value of MPS = $\displaystyle 0$·$\displaystyle 2$Then, the value of K = $\displaystyle \frac{1}{MPS}$ = $\displaystyle \frac{1}{0.2}$ = $\displaystyle 5$Suppose, the value of MPS = $\displaystyle 0$·$\displaystyle 4$Then, the value of K = $\displaystyle \frac{1}{0.4}$ = $\displaystyle 2.5$Thus, it is clear from illustration mentioned above that there exists inverse relationship between MPS and investment multiplier. As MPS rises, the value of investment multiplier falls.
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CBSE Class 12 Economics past-paper question from the 2022board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.