Sandeep Garg Macroeconomics Class 12 - Chapter 8: Income Determination and Multiplier

Sandeep Garg Class 12 Macroeconomics Solutions Chapter 8: Income Determination and Multiplier are explained by the expert economic teachers from the latest edition of Sandeep Garg Macroeconomics Class 12 textbook solutions.

At BYJU’S, we provide Sandeep Garg economics class 12 solutions to give comprehensive insight about the subject to the students. These insights will act as a priceless benefit to the students while completing their homework and help them to score well in the board exams.

Sandeep Garg Solutions Class 12 – Chapter 8 – Part B

Question 1

Calculate multiplier if MPC is : (i) 0.75 (ii) 0.90

Solution:

(i) Multiplier (k) = \(\frac{1}{1-MPC}\, =\, \frac{1}{1-0.75}\, =\, \frac{1}{0.25}\, =\, 4\)

(ii) Multiplier (k) = \(\frac{1}{1-MPC}\, =\, \frac{1}{1-0.90}\, =\, \frac{1}{0.10}\, =\, 10\)

Question 2

Calculate the value of multiplier if the MPS is: (a) 0.40 (b) Equal to MPC

Solution:

(a) Multiplier (k) = \(\frac{1}{MPS}\, =\, \frac{1}{0.40}\,=\, 2.5\)

(b) If MPS = MPC, then MPS = 0.5

Multiplier (k) = \(\frac{1}{MPS}\, =\, \frac{1}{0.5}\,=\, 2\)

Question 3

In an economy, income generated is four times the increase in investment expenditure. Calculate the values of MPC and MPS

Solution:

Multiplier 4

(a) Multiplier (k) = \(\frac{1}{1-MPC}\,\)

4= \(\frac{1}{1-MPC}\,\)

1- MPC = \(\frac{1}{4}\,\)

MPC= 0.75

MPS =1 – MPC

= 1 – 0.75

MPS= 0.25

Question 4

In a two-sector economy, the saving function is given as S = – 10 + 0.2Y and investment function is expressed as I = – 3 + 0.1Y. Calculate the equilibrium level of income?

Solution:

Equilibrium level of income (Y) is attained when S= I.

It means that:

-10 + 0.2Y = – 3 + 0.1Y

0.2Y – 0.1Y = – 3 +10

0.1Y = 7

Y=70

Equilibrium level of income = 70

Explore link: Aggregated Demand and Related Concepts solutions

Question 5

What are the two approaches for determining the equilibrium level of income?

Solution:

The two approaches for determining the equilibrium level of income are as follows:

  1. AD (or C+ I) and AS approach: Equilibrium is achieved when planned expenditure of the economy (AD) is equal to the planned availability of goods and services (AS), i.e., when AD=AS
  2. Saving and Investment Approach: Equilibrium level of income is determined at the level where planned saving is equal to planned investment. I.e., when S=1

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