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

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsDetermination of Income and Employment2 Marks
Question
Giving reasons, state whether the following statements are true or false.
  1. Average Propensity to Save is always greater than zero.
  2. Value of investment multiplier varies between zero and infinity.
✓

Answer

  1. No, the statement is false. When consumption is greater than the income level, the value of Average Propensity to Save is less than zero or negative.
  2. No, the statement is false. We know that, $\text{K}=\frac{1}{1-\text{MPC}'}$ so, even if the MPC will have its minimum value, i.e. zero, the investment multiplier will be 1.

Similarly, when MPC = 1, the value of investment multiplier is infinity. So, we can say that the value of investment multiplier varies between 1 and infinity

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