Calculate the different values of multiplier from the given consumption functions and arrange them in increasing order.
A. C = 10 + 0.8Y
B. C = 12 + 0.6Y
C. C = 14 + 0.5Y
D. C = 16 + 0.2Y
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → D, C, B, A
The investment multiplier tells how many times output rises for each rupee of new autonomous spending. The more of each extra rupee people spend, the more income passes on in each round, so it grows with the marginal propensity to consume c, the coefficient of Y in each function: multiplier = 1 ÷ (1 − c). The autonomous term does not enter it.
A. C = 10 + 0.8Y
Multiplier = 1 ÷ (1 − 0.8) = 1 ÷ 0.2 = 5
B. C = 12 + 0.6Y
Multiplier = 1 ÷ (1 − 0.6) = 1 ÷ 0.4 = 2.5
C. C = 14 + 0.5Y
Multiplier = 1 ÷ (1 − 0.5) = 1 ÷ 0.5 = 2
D. C = 16 + 0.2Y
Multiplier = 1 ÷ (1 − 0.2) = 1 ÷ 0.8 = 1.25
NCERT: Introductory Macroeconomics — Chapter 4: Determination of Income and Employment (2025-26)
|
