Scanner - Investment Multiplier, (2015 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

Commerce: Scanner - Investment Multiplier, (2015 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

The document Scanner - Investment Multiplier, (2015 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Macro Economics -Class 12.
All you need of Commerce at this link: Commerce

SAMPLE PAPER & Previous C.B.S.E QUESTION ’S 

(Q1) Giving reasons, state whether the following statements are true or false : (4M)

(i) When marginal propensity to consume is zero, the value of investment multiplier will also be zero.

(ii) If the ratio of marginal propensity to consume and marginal propensity to save is 4 :1, the value of investment multiplier will be 4.

Ans: (i) False , K = 1 (ii) False , K = 5 

(Q2) In an economy the equilibrium level of income is Rs. 12,000 crore. The ratio of marginal  propensity to consume and marginal propensity to save is 3: 1. Calculate the additional investment needed to reach a new equilibrium level of income of Rs. 20,000 crore.  (4M) 

(Q3) In an economy income increases by 10,000 as a result of a rise in investment expenditure by 1,000. Calculate:
(a) Investment Multiplier
(b) Marginal Propensity to Consume.    (3 M)

(Q4) The saving function of an economy is S = - 200 + .25Y. The economy is in equilibrium when income is equal to 2000. Calculate
(a) Investment expenditure at equilibrium level of output

(b) Autonomous consumption

(c) Investment multiplier

Ans: (2) Rs 2000 cr         (3) 10 , 0.9      (4) 300 cr ,  200 , 4 

(Q5) Explain with the help of numerical example how an increase in investment in an economy affects its level of income  (C.B.S.E 2005)

Ans:  Investment multiplier is a measure of the effect of change in the initial investment on c hange in final income. 

Numerical example  :: Suppose   I = Rs 100 cr.   MPC = 0.8 . Initial investment of Rs 100 cr. raises the income by ‘rs100 cr. In the first round, this additional income causes an increase in consumption expenditure which in turn, generates more income (as one man’s expenditure is another man’s income). This process continues till the total income is equal to multiplier times the initial investment.     

K = 1 / 1-MPC    K = 1 / 1- 0.8    K = 5 . Hence Change in income = 5 x 100 = Rs 500 

 (Explanation without schedule is also acceptable) (or any other relevant example)  (TABLE)

(Q6) Giving reasons, state whether the following statements are true or false :               (4M)

(a) When MPC is greater than MPS ,the value of multiplier will be greater than 5 

(b) when investment multiplier is 1 , the value of MPC is 0

(c) the value of investment multiplier varies between zero and infinity 

(d) there is inverse relationship between MPS and investment multiplier

Ans: False not allways , only when if MPC is greater than 0.8 , True , False , True

(Q7) In an economy the marginal propensity to consume is 0.75. Investment expenditure in the economy increases by Rs.75 crore. Calculate the total increase in national income.    (3 marks)

(Q8) In an economy the marginal propensity to save is 0.4. National income in the economy increases by Rs.200 crore as a result of change in investment. Calculate the change in investment. (3 marks)

(Q9) As a result of increase in investment by Rs.60 crore, national income rises by Rs.240 crore. Calculate marginal propensity to consume.  (3M)

(Q10) The value of MPC is double the value of MPS . Find the value of multiplier ?  

Ans:  (7)  300 cr (8) 80 cr  (9) 0.75  (10) 3

(Q11) Explain the meaning of investment multiplier. What can be its minimum value and why ? 

Ans: K = 1 when MPC = 0 & MPS = 1        

(Q12) What is the range of values of investment multiplier? Clarify the relation of investment multiplier with marginal propensity to consume (MPC) and with marginal propensity to save (MPS).                      

Ans: one to infinity , postive relation with MPC & negative relation with MPS 

(Q13) If MPC and MPS are equal, what is the value of the multiplier ?     

(Q14) An increase in investment leads to total rise in national income by Rs 500 crores. If MPC is 0.9, what is the increase in investment ? Calculate     

(Q15) An increase of Rs. 250 crores in investment in an economy resulted in total increase in  income of Rs. 1000 crores, Calculate the following :           

(a) Marginal propensity to consume       
(b) Change in Savings             

(c) Change in consumption expenditure    
(d) Value of multiplier (4) (s)

(Q16) There is increase in investment of 100 crore in an economy . MPC = 1 . What can you say about increase in income ? Calculate 

(Q17) In an economy, change in investment is Rs. 100 crores and Marginal Propensity to Consume is 0.9.  is the value of multiplier 10 and the change in income Rs. 1,200?  True or False.  Justify your answer.

(Q18)  If MPC is 0.9, what will be the value of multiplier ?  In order to increase National Income by Rs. 5,000 crores, an increase in investment should be of Rs. 500 crores.  True or False?  Justify your answer.

(Q19) “Economists are generally concerned about the rising Marginal Propensity to Save (MPS) in an economy”. Explain why ?    (3M)

Ans: Since the sum of MPC and MPS is unity any increase in Marginal Propensity to Save (MPS) would directly lead to decrease in Marginal Propensity to Consume (MPC). This means that may lead to lesser proportion of the additional income going to consumption which is a vital factor of Aggregate Demand/Expenditure. This may further lead to fall in equilibrium level of income in the economy. (3m)

(Q20) Complete the table 

        MPC        MPS        K (multiplier)

          0            -                          -    

                          1/2                     -

        -                       -                  3

        3/4                 -                   -


CBSE 2015 & 2016

(Q1) If MPC = 1, the value of multiplier is :                         

(a) 0 
(b) 1
(c) Between 0 and 1
(d) Infinity   
Ans: (d)     

(Q2) If MPC = 0, the value of multiplier is :                         

(a) 0 
(b) 1 
(c) Between 0 and 1 
(d) Infinity
Ans: (b)

(Q3) The value of multiplier is 

(a) 1 / MPC
(b) 1/MPS 
(c) 1  /     1-MPS
(d) 1 / MPC -1 

Ans: (b)

(Q4) Explain the process of working of the ‘investment multiplier’ with the help of a numerical example.

(Q5) In an economy an increase in investment by Rs.100 crore led to ‘increase’ in national income by Rs.1000 crore. Find marginal propensity to consume.  
Ans: 0.9  

(Q6) In an economy investment is increased by 300 crore. If MPC is 2 /3 , calculate increase in income .
Ans: 900 crore                                  

(Q7) Suppose MPC is 0.8 . How much increase in investment is required to increase national income by 2000 crore ? Calculate.    
Ans: 400 crore.                     

(Q8) In an economy , investment increases from 300 to 500 . As a result of this , equilibrium levelof income increases by 2,000 . Find MPC   
Ans: 0.9              

(Q9) In an economy , 20% of the increased income is saved . How much will be the increase in income if investment increases by 10,000 ? Calculate ?  
Ans:  50000          

(Q10) What will be the value of multiplier if entire additional income in converted into additional consumption ?
Ans: infinity

(Q11) What is the value of multiplier when Marginal Propensity to Save is zero ?

Ans: Infinity 

CBSE 2017

(Q1) If the marginal propensity to consume is greater than marginal propensity to save, the value of the multiplier will be (Choose the correct alternative)(1M)

(a) greater than 2
(b) less than 2
(c) equal to 2 
(d) equal to 5

Ans: (a) Greater than 2.                                    

(Q2) Calculate Multiplier when MPC is  4/5 and 1/2 . From the calculations establish the relation between size of Multiplier and size of MPC ? (3M) 

Ans: K = 5 & 2 , Observing the same we may conclude that there exist positive or direct relation between MPC and Investment Multiplier . Investment Multiplier coefficient measures the change in final income with respect to given change in the initial investment in the economy. It carries direct relation with rate of growth in an economy, i.e. higher the MPC more chance of growth exists in an economy. But, it is a two sided sword hence if investment falls in an economy the income may also fall.

(Q3) Assuming that increase in investment is Rs. 1000 crore and marginal propensity to     consume is 0.9 , explain the working of multiplier.

Q4) Assuming that increase in investment is Rs. 800 crore and marginal propensity to       consume is 0.8 , explain the working of multiplier

(Q5) Assuming that ‘increase’ in investment is Rs. 900 crore and marginal propensity to consume is 0.6, explain the working of multiplier

(Q6) In an economy, investment increased by 1,100 and as a result of it income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the  increase in income 

Ans:  4400 cr

(Q7) National income increases by Rs 2500 crore when an additional investment of Rs  500 crore is made. Calculate the value of investment multiplier.    
Ans:  K = 5 

(Q8) National income increases by rs 1000 crore due to an additional investment of rs 400 crores. Calculate the value of investment multiplier. 

Ans: K = 2.5

(Q9) If marginal propensity to consume is 0.5, calculate the value of investment multiplier.

Ans: K = 2

(Q10) If marginal propensity to consume is 0.8, how much will be the value of investment multiplier ? Calculate.

Ans: K = 5

CBSE 2018

(Q1) The value of marginal propensity to consume is 0.6 and initial income in the economy is Rs. 100 crores. Prepare a schedule showing Income, Consumption and Saving. Also show the equilibrium level of income by assuming autonomous investment of Rs. 80 crores.  (4M)

Ans:  200 crore

(Q2) Define multiplier. What is the relation between marginal propensity to consume and multiplier ? Calculate the marginal propensity to consume if the value of multiplier is 4.  (3M)

Ans: Investment Multiplier is a measure of the effect of change in initial                        investment on change in final national income.     (1)

There exist a direct relation between MPC and multiplier  i.e. higher the value of MPC , higher will be investment multiplier  K =  1 / 1 – MPC .    MPC = 0.75  (2)

The document Scanner - Investment Multiplier, (2015 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Macro Economics -Class 12.
All you need of Commerce at this link: Commerce

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