Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

Which one of the following saving functions corresponds to the investment multiplier of 5?

Options:

S=-20+0.25 Y

S=-40+0.75Y

 S=-60+0.20Y 

S=-75+0.60Y

Correct Answer:

 S=-60+0.20Y 

Explanation:

We know that value of k = 5
K= \(\frac{ 1}{MPS }\)

, from this formulae we can find out the value of MPS.
putting the values in the formulae of multiplier:
5=\(\frac{ 1}{MPS }\)

, Thus, MPS =\(\frac{1 }{ 5}\)

= 0.2
Value of MPS = 0.2

We know that the equation of saving function is as follows:
S= s + bY
Where S= total savings, s= autonomous savings, b= MPS and Y= Change in Income.
Thus, we will tick the answer which has 0.2 as MPS. Thus option 3 is correct.