Question
Define investment multiplier. Explain the relationship between marginal propensity to save and investment multiplier.
$\text{Multiplier(k)}=\frac{\Delta\text{Y}}{\Delta\text{I}}.$
Relationship between Multiplier and MPS: The value of the multiplier varies inversely with MPS. Higher the MPS, the lower will be the size of multiplier and lower the MPS, the larger will be the value of the multiplier. The relationship can be expressed as,$\text{k}=\frac{1}{\text{MPS}}$
For example, if MPS = 0.4,then,$\text{k}=\frac{1}{\text{MPS}}=\frac{1}{0.4}=2.5$
If MPS = 0.1 then, $\text{k}=\frac{1}{\text{MPS}}=\frac{1}{0.1}=10$ Thus, it is clear price from above that, higher the MPS, the smaller will be the size of multiplier and lower the MPS, the larger will be the size of multiplier. Thus, the size of multiplier and MPS are inversely related.Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.
OR
Explain why the price a consumer is willing to pay for a good equals the marginal utility of X when in equilibrium.OR
Explain why consumer's equilibrium is attained when the utility of a product in terms of money is equal to its price.| Output (Units) | 1 | 2 | 3 | 4 |
| AR(₹) | - | - | 11 | - |
| MR (₹) | 15 | - | - | 3 |
| TR (₹) | - | 26 | - | - |
| S. No. | | (₹ in crores) |
| (i) | Government final consumption expenditure. | 4,000 |
| (ii) | Private final consumption expenditure | 35,00 |
| (iii) | Gross domestic capital formation. | 1,100 |
| (iv) | Net exports. | 500 |
| (v) | Net factor income from abroad. | 100 |
| (vi) | Net factor income from abroad. | 300 |
| (vii) | Subsidies. | 40 |
| (viii) | Change in stock. | 80 |
| (ix) | Consumption of fixed capital. | 120 |