Question

Q.24 In an economy, investment increases by Rs 100 crore. As a result, income increases by Rs. 250 crore.
What is the value of multiplier? What does it imply? On the basis of the multiplier calculated, find out the
change in income, if investment changes by Rs. 750 crore.​

Answer 1

Increase in Investment is Rs. 100 crores and increase in income is Rs. 250 crores,

Multiplier(k) => Change in income / change in investment = 1/ MPS

=> 250/100 = 1/MPS

=>2.5 = 1/ MPS

=> MPS = 1/ 2.5 = 0.4

Answer 2

Answer:

Therefore, if investment changes by Rs. 750 crore, the change in income will be Rs. 1875 crore.

Explanation:

The multiplier is the ratio of the change in national income to the change in investment.

Multiplier = (Change in Income) / (Change in Investment) = 250/100 = 2.5

This implies that the impact of the initial investment is magnified through the economy, leading to a larger increase in income than the initial investment.

To find the change in income if investment changes by Rs. 750 crore, we can use the multiplier as follows:

Change in Income = Multiplier x Change in Investment

Change in Income = 2.5 x 750

Change in Income = 1875 crore

Therefore, if investment changes by Rs. 750 crore, the change in income will be Rs. 1875 crore.

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