# The Multiplier Mechanism

## Trending Questions

**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.

(i) Rs 5, 000 crore

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

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

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

(ii) Rs 4, 000 crore

**Q.**

Value of investment multiplier varies between zero and infinity.

True

False

**Q.**

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

True

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

5

0

1

4

**Q.**

If MPC increases, the value of multiplier will

Decrease

Remains constant

Increase

Increase as much as the increase in MPC

**Q.**

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

True

False

**Q.**

Zero MPC implies zero multiplier.

True

False

**Q.**

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

2

0

1

∞

**Q.**

If MPS is 0.6, what will be ΔS when income increases by Rs 100?

Rs 60

Rs 50

Rs 40

Rs 70

**Q.**

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

0.9

0.8

0.7

0.6

**Q.**

If MPS = 14, the value of multiplier will be

**Q.**

Find consumption when ¯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?

Consumption = 1, 150

NoConsumption = 1, 350

YesConsumption = 1, 150

YesConsumption = 1, 350

No

**Q.**

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

Excess capacity

Under utilisation of the existing resources

Over utilisation of the existing resources

Both A and B

**Q.**

Find the value of multiplier when MPC = MPS.

0.5

1

0

2

**Q.**

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

Increase

Decrease

Remain constant

Decrease as much as the decrease in MPS

**Q.**

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

9

6

10

12

**Q.**

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

Rs 25, 000

Rs 50, 000

Rs 15, 000

Rs 35, 000

**Q.**

Multiplier is equal to

ΔYΔI

ΔYΔS

ΔIΔY

ΔYΔC

**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.

0

1.5

1.2

1

**Q.**If MPC = 0.4 and ΔY = 1, 000, ΔS will be

- Rs 600
- Rs 400
- Rs 500
- Rs 250

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

**Q.**

Multiplier is estimated as

1MPC

11−MPS

11−MPC

11+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?

Income will not change

Income will increase by Rs 400 crore.

Income will decrease by Rs 400 crore.

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.

- 2, 3, 5 and 6
- 3 and 5
- 1, 2, 4 and 6
- 2, 3 and 5

**Q.**

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

Cannot be determined

1

0

Infinity

**Q.**

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

0

1

2

∞

**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.