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There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. It was at that time that J.M. This led to emergence of Macroeconomics as a separate branch of economics. Maximum value can be infinity and minimum value can be 1.
The correct value is 20. Explain the process of working of the ‘investment multiplier with the help of a numerical example. If the value of marginal propensity to consume is 0.6, calculate the value of multiplier. The whole process goes on until Initial investment becomes equal to the total savings of all rounds.
Thus there is divergence between the point of equilibrium attained by an economy and the point of equilibrium at which an economy has full employment of resources. This is the basic difference between Classical Theory and Keynesian Theory. Suppose, the government of a country spends Rs 100 crore on building roads. National income of the country automatically rises by Rs 100 crore in Round 1. Explain the income propagation process due to change in investment.
NCERT Solutions for Class 12 Macro Economics National Income Determination and Multiplier
As in each successive round, there is an increase of saving by 20% of the previous round. This is the second-round increase. It equals to 80% of the first-round increase. The higher is the income of the second one more is the expenditure, the higher would be the income of the third one. Higher is the consumption of one, higher would be the income of the other.
So, overall additional income generates in several rounds. Flexibility of prices and wages. Even if at any time there is unemployment, it must be temporary because in a free economy, flexibility of prices and wages automatically bring about full employment. Suppose at a given wage rate there is unemployment which implies that supply of labour is greater than demand for it. Competition among labour to seek employment would lead to fall in wage rate.
If individual ‘A’ decides to save more by reducing his consumption expenditure, the income of individual ‘B’ will be less and individual ‘B’ in turn will spend less. If all the people in the economy make an effort to save more, then the total savings of the community will not increase, on the contrary they will decrease. This is called the paradox of thrift. The total increase in income takes several rounds.
Using the ‘saving and investment’ approach explain how is the equilibrium level of national income determined? Also explain what will happen if the equilibrium condition is not fulfilled. In an economy planned saving is greater than planned investment. Explain how the economy achieves equilibrium level of national income. If marginal propensity to save is 0.1 and increase in national income is Rs 500 crore, calculate increase in investment.
What is Minimum and Maximum Value of Investment Multipler k?
Higher the value of MPC, the higher the multiplier, and vice-versa. But as per the concept of Investment Multiplier, what can be maximum value of investment multiplier the increment in the income is many times more than the initial increase in the investment. Given level of income.
This is the first-round increase. Find change in income if multiplier is 4 and increase in investment is 15 crore. Find change in investment if multiplier is 2 and increase in income 8 crore. If MPC is 0.9. What is the value of multiplier?
How much investment is needed to increase national income by 5000 crore ? What changes will take place to bring an economy in equilibrium if planned savings are greater than planned investment, and planned savings are less than planned investment. When marginal propensity to consume is zero, the value of investment multiplier will also be zero. As given in the examination problem, when planned saving is less than planned investment, then national income will decrease as shown in the below diagram. As given in the examination problem, when planned saving is greater than planned investment, then national income will decrease as shown in the diagram. An increase of Rs 1000 crore in invest¬ment leads to a rise of Rs 5000 crore in the national income.
Answer
Explain determination of equilibrium level of income using consumption plus investment approach. When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier would be greater than 5. In the above figure , we have induced investment function which makes the investment curve upward positively sloping. With the increase in savings, not only the equilibrium income falls, but also savings decline. Investment refers to the expenditure on producer goods. So as an investment in ₹ 100 crore raises the income of suppliers of such goods by ₹ 100 crores.
- With the increase in savings, not only the equilibrium income falls, but also savings decline.
- If M.E.I is greater than the rate of interest, the investors has to increase the investment and if the rate is higher than the M.E.I, no investment is to be made.
- Explain the process of working of the ‘investment multiplier with the help of a numerical example.
- The higher is the income of the second one more is the expenditure, the higher would be the income of the third one.
- Thus, the Investment multiplier has a direct relationship with MPC.
Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion . Both Assertion and https://1investing.in/ Reason are true, and Reason is the correct explanation of Assertion . But, When the MPC maximum value is 0.
Class 12
As we already have discussed, the higher is the MPC, the higher would be the investment multiplier. The questions posted on the site are solely user generated, Doubtnut has no ownership or control over the nature and content of those questions. Doubtnut is not responsible for any discrepancies concerning the duplicity of content over those questions. Consumption function (linear, i.e., straight line consumption function) is represented by the following equation. Now suppose MPC is 0.5, people working in the investment industry will spend Rs 50 crore on new consumption goods. It can be illustrated with the help of a simple example.
The different Names of Investment Multiplier.
In fact, aggregate demand in the economy is the driving force that determines the level of output, employment and income. It is because the level of aggregate supply is constant during short period. If aggregate demand increases, level of output will increase to meet the increased demand.
At the given price level, output can be increased till all the resources are fully employed. Consumption expenditure at equilibrium level of national income. These Rs 25 crore will, thus, become the income for others. This will continue till total increase in income becomes k times the increment of investment.