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
Differentiate between full employment equilibrium and under employment equilibrium with the help of a diagram.
(a) Investment Multiplier = ΔYΔI=100001000=10
K (Multiplier) = 11−MPC or 10=11−MPC
Full employment equilibrium Under employment equilibrium When AD equals AS such that resources When AD equals AS such that resources are notare fully employed, the economy achievesfully employed or before the full employment level.full employment equilibrium. At this point, there is no involuntaryAt this point, there is involuntary unemployment unemployment in the economy.in the economy.