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

True

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False

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Solution

The correct option is B False
False.
As MPC= 4/5= 0.8 and MPS = 1/5 = 0.2, then
Multiplier(K) = 1/ MPS= 1/ 0.2 = 5

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Similar questions

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.

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