If MPS = 0.25 and MPM = 0.15, then which of the following statements is/are correct ? (a) Foreign trade…
The foreign trade multiplier is \(1/(\mathrm{MPS}+\mathrm{MPM})\) \(=1/(0.25+0.15)\) \(=2.5\). An export increase of 200 therefore raises income by \(2.5\times200=500\), so…
Choose your answer
If MPS = 0.25 and MPM = 0.15, then which of the following statements is/are correct ?
(a) Foreign trade multiplier = 2.5
(b) Foreign trade multiplier = 4
(c) An increase of exports of 200 increases income by 500
(d) An increase of exports of 200 increases income by 800
Answer and explanation
Correct answer D
The foreign trade multiplier is . An export increase of 200 therefore raises income by , so the multiplier and income statements with these values are correct.
Practice for these exams
-
Rajasthan SET (RSET)