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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.
Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.
  • a)
    Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
  • b)
    Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
  • c)
    Assertion (A) is true, but Reason (R) is false.
  • d)
    Assertion (A) is false, but Reason (R) is true.
Correct answer is option 'A'. Can you explain this answer?
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Directions : In the following questions, a statement of Assertion (A...
Higher the MPS, lower the multiplier and lower the MPS, higher the multiplier, as K=1/MPS.
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Directions : In the following questions, a statement of Assertion (A...
Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.

Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.

Explanation:
The assertion states that there is an inverse relationship between the value of marginal propensity to save (MPS) and investment multiplier. The reason provided is that saving is a leakage in the circular flow of income, and greater saving leads to greater leakage, which in turn lowers the value of the investment multiplier.

Understanding Marginal Propensity to Save (MPS):
MPS refers to the proportion of additional income that individuals choose to save rather than spend. It indicates the rate at which saving changes in response to a change in income. MPS ranges from 0 to 1, where 0 represents no saving and 1 represents saving the entire additional income.

Understanding Investment Multiplier:
The investment multiplier is a concept in economics that measures the change in national income resulting from a change in investment. It represents the multiplier effect of investment on the overall economy. The formula for the investment multiplier is given as:
Investment Multiplier = 1 / (1 - MPC)
where MPC is the marginal propensity to consume.

Explanation of the Assertion-Reason Relationship:
The assertion is true because there is indeed an inverse relationship between MPS and the investment multiplier. When individuals have a higher marginal propensity to save, it means they save a larger proportion of their additional income. This leads to a higher leakage in the circular flow of income, as saving is considered a leakage since it is not immediately spent back into the economy.

The reason is also true because greater saving leads to a higher leakage, which reduces the value of the investment multiplier. The investment multiplier is calculated as the reciprocal of the marginal propensity to consume (MPC). As MPS increases, the MPC decreases because the proportion of income that is consumed decreases. Therefore, the value of the investment multiplier decreases, indicating a lower impact of investment on the overall economy.

Conclusion:
In conclusion, both the assertion and reason are true, and the reason correctly explains the assertion. The inverse relationship between MPS and the investment multiplier is due to the leakage caused by saving in the circular flow of income. Greater saving leads to a higher leakage and a lower value of the investment multiplier.
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).c)Assertion (A) is true, but Reason (R) is false.d)Assertion (A) is false, but Reason (R) is true.Correct answer is option 'A'. Can you explain this answer?
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Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).c)Assertion (A) is true, but Reason (R) is false.d)Assertion (A) is false, but Reason (R) is true.Correct answer is option 'A'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).c)Assertion (A) is true, but Reason (R) is false.d)Assertion (A) is false, but Reason (R) is true.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): There is an inverse relationship between the value of marginal propensity to save and investment multiplier.Reason (R): Saving is a leakage in the circular flow of income. Greater the saving, greater the leakage and lower the value of investment multiplier.a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).c)Assertion (A) is true, but Reason (R) is false.d)Assertion (A) is false, but Reason (R) is true.Correct answer is option 'A'. Can you explain this answer?.
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