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If in an economy, the value of investment multiplier is 5 and dissavings are (-) 100 crore, the relevant savings at income level of Rs 1400 crore would be?
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If in an economy, the value of investment multiplier is 5 and dissavin...
The Investment Multiplier and Relevant Savings

The investment multiplier is a concept in economics that measures the effect of changes in investment on overall income. It represents the ratio of an initial change in investment to the resulting change in total income. In this scenario, the investment multiplier is given as 5.

Formula for the Investment Multiplier:
The formula for the investment multiplier is as follows:
Investment Multiplier = 1 / (1 - Marginal Propensity to Consume)

Understanding Dissavings:
Dissavings refers to a situation where an individual or an economy spends more than its current income, resulting in a negative savings amount. In this case, it is given as (-) 100 crore, indicating that the economy is spending more than it earns.

Calculating Relevant Savings:
To calculate the relevant savings at an income level of Rs 1400 crore, we need to use the investment multiplier and the given dissavings amount.

1. Calculate the Marginal Propensity to Consume (MPC):
The MPC is the proportion of additional income that is spent on consumption. It can be calculated using the investment multiplier formula, rearranged as follows:
MPC = 1 - (1 / Investment Multiplier)

In this case, MPC = 1 - (1 / 5) = 1 - 0.2 = 0.8

2. Calculate the Change in Income (ΔY):
The change in income can be calculated by multiplying the dissavings amount by the investment multiplier:
ΔY = Dissavings × Investment Multiplier
ΔY = (-) 100 crore × 5 = (-) 500 crore

3. Calculate the Change in Savings (ΔS):
The change in savings can be calculated by multiplying the change in income by the MPC:
ΔS = ΔY × MPC
ΔS = (-) 500 crore × 0.8 = (-) 400 crore

4. Calculate the Relevant Savings:
To find the relevant savings at an income level of Rs 1400 crore, we need to add the change in savings to the initial savings amount:
Relevant Savings = Initial Savings + ΔS
Relevant Savings = 1400 crore + (-) 400 crore = 1000 crore

Conclusion:
The relevant savings at an income level of Rs 1400 crore, considering a dissavings amount of (-) 100 crore and an investment multiplier of 5, would be Rs 1000 crore. This calculation takes into account the impact of the investment multiplier and the expenditure pattern of the economy, as reflected in the marginal propensity to consume.
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Read the following passage and answer on the basis of the same :The subject-matter of economics is divided into two major branches—Microeconomics and Macroeconomics. Microeconomics studies the economic behaviour of individual economic units and individual economic variables, whereas macroeconomics deals with the functioning of the economy as a whole. Macroeconomics dealswith the broad economic aggregates or bigger issues, such as full employment, unemployment, full capacity, under capacity production, inflation or deflation, etc. Macroeconomics is concerned with the theory of national income, employment, aggregate consumption, savings and investment, general price level, economic growth, etc. Whereas, microeconomics is concerned with the theory of product pricing, factor pricing and consumer behaviour, etc.Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause and effect behavioural relationships and includes the development and testing of economic theories. Positive economics is objective and facts based. Whereas normative economics is a part of economics that expresses value or normative judgments about economic fairness or what the outcome of the economy or goals of public policy ought to be. Normative economics is subjective and value based.For example, the statement, “government-provided healthcare increases public expenditures” is a positive economic statement and the statement, “government should provide basic healthcare to all citizens” is a normative economic statement.Q. Macroeconomics is concerned with the theory of national income, employment, aggregate consumption, savings and investment, general price level, economic growth.

Read the report given below and answer the questions that follow:In an economy the Aggregate Demand is determined by consumption, Government Expenditure and Net Exports in the economy. This is affected by the Savings and Investment in the economy. The Multiplier, that is investment multiplier, which is influenced by the ratio of total consumption and total income, regulates the flow of money in the economy influencing the Aggregate Demand and Supply. Any change in any of the factors leads to a big change in the economy’s equilibrium as a whole. It is to be kept in mind that the economy needs to be in equilibrium condition. When savings is less than the investments the aggregate demand is more than the aggregate supply, and vice versa.Aggregate Demand is not determined by which of the following

Read the report given below and answer the questions that follow:In an economy the Aggregate Demand is determined by consumption, Government Expenditure and Net Exports in the economy. This is affected by the Savings and Investment in the economy. The Multiplier, that is investment multiplier, which is influenced by the ratio of total consumption and total income, regulates the flow of money in the economy influencing the Aggregate Demand and Supply. Any change in any of the factors leads to a big change in the economy’s equilibrium as a whole. It is to be kept in mind that the economy needs to be in equilibrium condition. When savings is less than the investments the aggregate demand is more than the aggregate supply, and vice versa.Investment Multiplier is the ratio of change in ___________ and _____________.

Read the report given below and answer the questions that follow:In an economy the Aggregate Demand is determined by consumption, Government Expenditure and Net Exports in the economy. This is affected by the Savings and Investment in the economy. The Multiplier, that is investment multiplier, which is influenced by the ratio of total consumption and total income, regulates the flow of money in the economy influencing the Aggregate Demand and Supply. Any change in any of the factors leads to a big change in the economy’s equilibrium as a whole. It is to be kept in mind that the economy needs to be in equilibrium condition. When savings is less than the investments the aggregate demand is more than the aggregate supply, and vice versa.What happens when the Investment is lesser than Savings?

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If in an economy, the value of investment multiplier is 5 and dissavings are (-) 100 crore, the relevant savings at income level of Rs 1400 crore would be?
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If in an economy, the value of investment multiplier is 5 and dissavings are (-) 100 crore, the relevant savings at income level of Rs 1400 crore would be? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about If in an economy, the value of investment multiplier is 5 and dissavings are (-) 100 crore, the relevant savings at income level of Rs 1400 crore would be? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If in an economy, the value of investment multiplier is 5 and dissavings are (-) 100 crore, the relevant savings at income level of Rs 1400 crore would be?.
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