Match the following values of determinants of the value of investment multiplier with the appropriate…
The investment multiplier is \(k=1/(1-MPC)=1/MPS\), and it also equals the change in income divided by the change in investment. These relations give \(1/0.75=1.333\ldots\),…
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Match the following values of determinants of the value of investment multiplier with the appropriate approximate value of investment multiplier:
| Values of determinants of investment multiplier | Value of investment multiplier |
| a) Marginal propensity to consume = 0.25 | i) 2 |
| b) Marginal propensity to save = 0.50 | ii) 4 |
| c) Change in investments = Rs. 75 and change in income = Rs. 300 | iii) 1.33 |
| d) Change in consumption = Rs. 40 and change in income = Rs. 100 | iv) 1.67 |
Answer and explanation
Correct answer B
The investment multiplier is , and it also equals the change in income divided by the change in investment. These relations give , , , and , respectively. Rounded to two decimal places, the four values are 1.33, 2, 4 and 1.67.
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Telangana SET (TG SET)