Identify the correct chain of action from the following,
A. Investment multiplier rises
B. Economy grows
C. MPC rises
D. Income rises
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 4
The correct answer is option (4) : C, A, D, B
- C. MPC rises: An increase in the Marginal Propensity to Consume (MPC) means that households are spending a larger proportion of their income, which stimulates consumption.
- A. Investment multiplier rises: With a higher MPC, the consumption function's multiplier effect increases, leading to a larger impact on aggregate demand and economic activity.
- D. Income rises: Increased consumption and investment lead to higher aggregate demand, prompting firms to produce more, which in turn increases national income.
- B. Economy grows: Finally, as income rises continuously due to increased consumption and investment, the overall economy experiences growth.