Question

(b) if the value of marginal propensity to save is 0.3 find income
multiplier​

Answer 1

Answer:

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Answer 2

Answer:

The multiplier refers to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital.

The multiplier in this question will be 3.33.

Explanation:

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

The marginal propensity to save (MPS) refers to the proportion of an aggregate raise in income that a consumer saves rather than spends on the consumption of goods and services.

MPS = Change in Saving ÷ Change in Income

The marginal propensity to consume (MPC), which shows how much a change in income affects purchasing levels.

MPC = Change in Spending ÷ Change in Income

If MPS= 0.3 , then MPC =1- MPS = 1- 0.3  = 0.7. So,

Multiplier(k) = 1/ (1-MPC)

                     = 1/(1-0.7)

                     = 1/0.3

                     = 3.33

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