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 2
The correct answer is Option (2) → (C), (A), (D), (B)
The marginal propensity to consume (MPC) is the part of each extra rupee of income that people spend. The chain starts from a change in this behaviour.
(C) MPC rises — People spend a larger part of any extra income.
(A) Investment multiplier rises — The multiplier is 1 / (1 − MPC). As MPC rises, the bottom of this fraction gets smaller, so the multiplier gets larger.
(D) Income rises — Each round of spending is now bigger. So a rise in investment raises income by more.
(B) Economy grows — Higher income goes with more output of final goods, which is growth of the economy.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| – | – | – | 13-06 S3 16-06 S3 | – |
NCERT (2026-27): “4.1.1. Consumption … When income rises by Re 1. induced consumption rises by MPC i.e. c or the marginal propensity to consume. It may be explained as a rate of change of consumption as income changes.…”
|
