Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

When the value of MPC is 1, the value of the investment multiplier will be ____________.

Options:

 1

 0

 ∞

Value of MPC cannot be 1.

Correct Answer:

Value of MPC cannot be 1.

Explanation:

MPC and multiplier have positive relation. When MPC is maximum, then multiplier will be maximum. Maximum MPC can have value 1 as MPC + MPS =1. So, when MPC = 1, then multiplier =  \(\frac{ 1}{\text {1 - MPC}}\) = \(\frac{1 }{\text 1 - 1 }\) = C