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Ex Ante Consumption

If Investment...

Question

If Investment multiplier is 1, what will be the value of marginal propensity to consume?

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Solution

The value of the multiplier will be 1 when there is one time change in income or when MPC= 0.
Multiplier(k) = 1/ (1-MPC)
= 1/(1-0)
= 1/1
= 1

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Q. If the ratio of marginal propensity to consume and marginal propensity to save is 4:1, the value of investment multiplier will be 4.

Q. When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.

Q. When marginal propensity to consume is zero, the value of investment multiplier will also be zero.

Q. When investment multiplier is 1, the value of marginal propensity to consume is zero.

Giving reasons state whether the following statements are true or false:

(a) When marginal propensity to consume is zero, the value of investment multiplier will be 1.

(b) If the ratio of marginal propensity to consume and marginal propensity to save is 4: 1, the value of investment multiplier will be 4.

(c) AD curve starts from X-axis.

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