Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

What will be the value of multiplier when Marginal propensity to consume is greater than Marginal Propensity to save?

Options:

greater than 2 

less than 2

 equal to 0   

equal to 1

Correct Answer:

greater than 2 

Explanation:

We can check this by simply putting assumed values in the formulae of K. As question says value of MPS is less than MPC so value of MPC should be slightly higher than 0.5 and value of MPS should be slightly less than 0.5. For ex let's assume MPC= 0.51 and MPS= 0.49 (Which satisfies the condition given in the ques). Now,
k= \(\frac{1 }{ \text 1 - MPC}\)or \(\frac{ 1}{ MPS}\)k= \(\frac{1 }{ \text 1-0.51}\)= 2.04 Which is greater then 2.

This holds true for any values which satisfies the condition given in ques. Hence, for any value where MPC > MPS value of multiplier will be greater than 2