Question
Find incremental investment when equilibrium GDP increases by Rs 50,000 and half of additional income is always saved in the economy.
Answer: Option A
:
A
Change in savings =50,000×12=25,000
We know, MPS=ΔSΔY=25,00050,000=0.5
We know,
Multiplier (M)=11−MPC=1MPS
Or, M=ΔYΔI
Now, MPS = 0.5, we get ΔI=ΔYM
=50,0002=25,000 [M=1MPS=10.5=2]
Increase in GDP by Rs 50,000 is caused by increase in investment of Rs 25,000.
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:
A
Change in savings =50,000×12=25,000
We know, MPS=ΔSΔY=25,00050,000=0.5
We know,
Multiplier (M)=11−MPC=1MPS
Or, M=ΔYΔI
Now, MPS = 0.5, we get ΔI=ΔYM
=50,0002=25,000 [M=1MPS=10.5=2]
Increase in GDP by Rs 50,000 is caused by increase in investment of Rs 25,000.
Was this answer helpful ?
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