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Determination of Income and Employment — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsDetermination of Income and Employment6 Marks
Question
Derive the multiplier when MPS is:
  1. 0.10
  2. 0.20
  3. 0.25
Using these multiplier values, find the change in the equilibrium level of income that results from ₹ 20 crore decrease in investment.
✓

Answer

  1. $\text{K}=\frac{1}{\text{MPS}}=\frac{1}{0.10}=10$
$\text{K}=\frac{\Delta\text{Y}}{\Delta\text{I}}\ \text{or}\ 10=\frac{\Delta\text{Y}}{(-)20\ \text{crore}}$
$\Delta\text{Y}=(-)200\ \text{crore}.$
  1. $\text{K}=\frac{1}{\text{MPS}}=\frac{1}{0.20}=5$
$\text{K}=\frac{\Delta\text{Y}}{\Delta\text{I}}\ \text{or}\ 5=\frac{\Delta\text{Y}}{(-)20\ \text{crore}}$
$\Delta\text{Y}=(-)100\ \text{crore}.$
  1. $\text{K}=\frac{1}{\text{MPS}}=\frac{1}{0.25}=4$
$\text{K}=\frac{\Delta\text{Y}}{\Delta\text{I}}$
$4=\frac{\Delta\text{Y}}{(-)20\ \text{crore}}$
$\Delta\text{Y}=(-)80\ \text{crore}.$

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