Relation between Investment Multiplier k and MPS

Relationship between K and MPS - Teachoo.JPG

Does K and MPS have Direct Relation or Inverse Relation - Teachoo.JPG

Example 2.

Calculate the value of multiplier if the MPS is:

(a) 0.40;

(b) Equal to MPC

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Example 9.

Calculate MPS and Multiplier (k) from the following data:

Income (Rs) 100 200
Saving (Rs) 40 100
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Example 6.

In an economy, the actual level of income is ₹ 500 crores, whereas, the full

employment level of income is ₹ 800 crores. If one-fourth of additional income is saved, calculate

increase in investment required to achieve full employment level of income.

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Example 8.

In an economy, the equilibrium level of income is ₹ 12,000 crore. The ratio of marginal propensity to consume and marginal propensity to save is 3:1. Calculate the additions investment needed to reach a new equilibrium level of income of ₹ 20,000 crore.

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Example 20.

In an economy, with every increase in income, 10 per cent of the rise in income is saved. Suppose a fresh investment of ₹ 120 crores takes place in the economy. Calculate the following:

(i) Change in the income;

(ii) Change in consumption.

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NCERT Questions

No questions in this part

Other Books

Question 1

How is Investment Multiplier related to MPS?

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K and MPS have Inverse Relation

If MPC increases, K Decreases

IF MPS Decreases, K increases


Question 2

MPS = 0.25

Calculate value of Multiplier

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Relationship between K and MPS K We know that MPS We know that MPC+MPS=1 MPS=1-MPC Does K and MPS have Direct Relation or Inverse Relation If MPC Increases, K Decreases If MPS Decreases, K Increases Example If MPC = 0.25 If MPC Increases to 0.5 Hence, if MPS increases from 0.25 to 5 K Decreases from 4 to 2 Both have Inverse Relation

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo