In the simple Keynesian model, if an increase in the level of investment is accompanied by reduction in…
Both savings and output increase in the simple Keynesian model. Equilibrium requires \(S=I\), so the rise in investment raises equilibrium saving. A lower propensity to save…
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In the simple Keynesian model, if an increase in the level of investment is accompanied by reduction in the propensity to save, the combined effect will be
Answer and explanation
Correct answer A
Both savings and output increase in the simple Keynesian model. Equilibrium requires , so the rise in investment raises equilibrium saving. A lower propensity to save increases the multiplier and reinforces the rise in output.
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West Bengal SET (WB SET)