Extra Questions - Investment Multiplier | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

EXTRA QUESTION’S

(Q1) “ Government plans Massive Public Investment Boost Economy.” [ International Business Times] Explain the manner in which it is expected to happen.

Ans: Indian economy is passing through a phase of economics slowdown. Private investment is not forthcoming because of (i) the lack of AD, and (ii) the lack of infrastructure. Investment by the government would lead to a rise in AD , as investment involves expenditure and expenditure induces demand.This would address the problem of deficient AD.Second, infrastructure is expected to be the focus of government investment.   Accordingly, the problem of deficient infrastructure would also be addressed.

(Q2) According to Survey “Americans have a higher Per Capita Income, yet a low marginal Propensity to Consume”. Explain why ? Is it harmful for the economy ?

Ans: In fact, Americans have their higher per capita income, for the past so many years and their basic need for consumer durable goods have already been fulfilled. It is                 therefore their MPC has become low now and it is resulting in low demand for manufactured goods. Thus low MPC is affecting economic growth rate of US economy adversely.

(Q3) In the month of July, 2016 , Modi Government dispersed salaries to CG employees on the basis of 7th Pay Commission, how it will help in raising growth rate of the economy ?

Ans: When employees of central govt. get higher salaries on the basis of 7th Pay Commission, they will spend more on consumption goods. It will raise demand for   consumer durable goods. Thus economists in India now believe that policy implementation of the govt. will help in raising growth rate of the economy.

(Q4) Indian Industry is showing lesser growth of Indian Industrial Production (IIP). Suggest measures to raise it.

Ans: Efforts should be made to encourage investment in Industrial manufacturing sector. For this purpose RBI should lower bank rate so that market rate of interest becomes cheaper. It will encourage private entrepreneurs to make ‘more investments’. It will help in raising industrial production and income of the country.

(Q5) Give a formula to show the relationship between multiplier and MPC ?

(Q6) In poor countries like India, people spend a high percentage of their income so that APC and MPC are high. Yet value of the multiplier is low . Why ?    

(Q7) Would you suggest higher value of  consumption or saving for higher value of multiplier ?

(Q8) What is MPC ? How does it affect the level of income in the economy ?

(Q9) “ Banks need to channelise household savings into financial system” What is the economic value of this statement 

(Q10) Media reports that the government of India is encouraging foreign direct investment in a bigger way than ever before. Why ? Give reasons.