The Multiplier Mechanism

Q.

In an economy, 75 per cent of the increase in income is spent on consumption, Investment is increased by Rs 1, 00 crore. Calculate :

(i) Total increase in income.

(ii) Total increase in consumption expenditure.

1. (i) Rs 5, 000 crore
   (ii) Rs 3, 000 crore

2. (i) Rs 4, 000 crore
   (ii) Rs 3, 000 crore

3. (i) Rs 3, 000 crore
   (ii) Rs 3, 000 crore

4. (i) Rs 3, 000 crore
   (ii) Rs 4, 000 crore

Q.

Value of investment multiplier varies between zero and infinity.

1. True

2. False

Q.

There is a direct relationship between MPC and value of investment multiplier.

1. True

2. False

Q.

If the ratio of marginal propensity to consume and marginal propensity to save is 8:2, the value of investment multiplier will be

1. 5

2. 0

3. 1

4. 4

Q.

If MPC increases, the value of multiplier will

1. Decrease

2. Remains constant

3. Increase

4. Increase as much as the increase in MPC

Q.

Autonomous increase in investment always causes an autonomous increase in income.

1. True

2. False

Q.

Zero MPC implies zero multiplier.

1. True

2. False

Q.

If entire additional income is converted into additional consumption, the value of multiplier will be

1. $2$

2. $0$

3. $1$

4. $\infty$

Q.

If MPS is 0.6, what will be $\Delta S$ when income increases by Rs 100?

1. Rs 60

2. Rs 50

3. Rs 40

4. Rs 70

Q.

If income increases from 3, 000 to 4, 000, and autonomous investment increases by 200, the MPC should be

1. 0.9

2. 0.8

3. 0.7

4. 0.6

Q.

If MPS = $\frac{1}{4},$ the value of multiplier will be ___.

Q.

Find consumption when $\overline{C}=100,$ MPC = 0.5 and Y = 2, 000. Is there is greater increase in income as compared to consumption when income changes to 2, 500?

1. Consumption = 1, 150
   No

2. Consumption = 1, 350
   Yes

3. Consumption = 1, 150
   Yes

4. Consumption = 1, 350
   No

Q.

If aggregate demand increases, aggregate supply will increase only when there is(are)

1. Excess capacity

2. Under utilisation of the existing resources

3. Over utilisation of the existing resources

4. Both A and B

Q.

Find the value of multiplier when MPC = MPS.

1. 0.5

2. 1

3. 0

4. 2

Q.

If the marginal propensity to save decreases, the value of the multiplier will

1. Increase

2. Decrease

3. Remain constant

4. Decrease as much as the decrease in MPS

Q.

If MPC = 0.9, then value of multiplier will be :

1. 9

2. 6

3. 10

4. 12

Q.

Find incremental investment when equilibrium GDP increases by Rs 50, 000 and half of additional income is always saved in the economy.

1. Rs 25, 000

2. Rs 50, 000

3. Rs 15, 000

4. Rs 35, 000

Q.

Multiplier is equal to

1. $\frac{\Delta Y}{\Delta I}$

2. $\frac{\Delta Y}{\Delta S}$

3. $\frac{\Delta I}{\Delta Y}$

4. $\frac{\Delta Y}{\Delta C}$

Q.

If investment increases from 400 to 600 and income increases from 3, 000 to 4, 000, the MPS should be equal to

Q.

There is an increase in investment by Rs. 200 crores. This has increased the income multifold. What will be the total increase in consumption if consumption function is C = 50 + 0.5Y?

Q.

Find MPC when investment multiplier = 1.

1. 0

2. 1.5

3. 1.2

4. 1

Q. If MPC = 0.4 and $\Delta Y$ = 1, 000, $\Delta S$ will be .

1. Rs 600
2. Rs 400
3. Rs 500
4. Rs 250

Q. Define marginal utility. State the law of diminishing marginal utility.

Q.

Multiplier is estimated as

1. $\frac{1}{MPC}$

2. $\frac{1}{1-MPS}$

3. $\frac{1}{1-MPC}$

4. $\frac{1}{1+MPC}$

Q.

If the value of the multiplier is 4, what will be the effect on the income of an economy if investment increases by Rs 100 crore?

1. Income will not change

2. Income will increase by Rs 400 crore.

3. Income will decrease by Rs 400 crore.

4. Income will increase by Rs 500 crore.

Q. Which among the following are the cost-push causes of inflation?
$1$. Deficit financing
$2$. Increase in administrating prices
$3$. Increase in interest rates
$4$. Increase in population
$5$. Increase in oil prices
$6$. Mounting public expenditure
Select the correct answer using the code given.

1. $2,3,5$ and $6$
2. $3$ and $5$
3. $1,2,4$ and $6$
4. $2,3$ and $5$

Q.

Find out the value of the multiplier, if MPC is zero.

1. Cannot be determined

2. 1

3. 0

4. Infinity

Q.

If MPC = MPS, the value of multiplier will be:

1. $0$

2. $1$

3. $2$

4. $\infty$

Q.

Find the value of $12\%$ of $18.6$.

Q.

In an economy income increases by Rs. 10, 000 as a result of a rise in investment expenditure by Rs. 1, 000. Calculate:

(a) Investment Multiplier

(b) Marginal Propensity to Consume

OR

Differentiate between full employment equilibrium and under employment equilibrium with the help of a diagram.