If the value of Keynesian investment multiplier is 4, which one of the following will be the…
In the elementary model, k=1/MPS. Thus MPS=1/4=0.25, so the saving function must have income slope 0.25. Only S=−12+0.25Y_D does. Slopes 0.4, 0.75, 0.35 give multipliers…
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If the value of Keynesian investment multiplier is 4, which one of the following will be the corresponding saving function?
Answer and explanation
Correct answer C
In the elementary model, k=1/MPS. Thus MPS=1/4=0.25, so the saving function must have income slope 0.25. Only S=−12+0.25Y_D does. Slopes 0.4, 0.75, 0.35 give multipliers 2.5, 4/3, and 20/7 respectively; the intercept does not determine k.
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UGC NET Economics