SECTION-B (Macro-economics) If in an economy ...

CBSE 2019 Class 12 Economics Delhi Set 2

Question : 1 of 3

Marks: +1, -0

SECTION-B

(Macro-economics)

If in an economy :

Change in initial investment

(\Delta I)=\text{₹}700

crores Marginal Propensity to Save (MPS)

=0.2

Find the values of the following:

(a) Investment Multiplier (k)

(b) Change in final income (ΔY)

Solution:

(a) Change in initial investment

(\Delta I)=\text{₹}700

crores

Marginal propensity to save

(

MPS)

=0.2

Investment multiplier

(k)=\frac{1}{\text{MPS}}

=\frac{1}{0.2}

K=5

(b) Change in final income

(\Delta Y)

K=\frac{\Delta Y}{\Delta I}

\Delta Y=K\times\Delta I

=5\times700

=\text{₹}3500\text{ crores.}

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