Justify the statement:
(a) MPC and MPS are related to multiplier.
(b) Economy cannot be at equilibrium, when ex-ante savings greater than ex-ante investments.
(c) Investment increases with the increase in income.
Justify the statement:
(a) MPC and MPS are related to multiplier.
(b) Economy cannot be at equilibrium, when ex-ante savings greater than ex-ante investments.
(c) Investment increases with the increase in income.
(a) MPC and MPS are related to the multiplier.
MPC is directly related and MPS is inversely related to the multiplier. The multiplier is 1/ (1-c).
(b) Economy cannot be at equilibrium when ex-ante savings are greater than ex-ante investments. It implies the fall in aggregate demand and increase in stock will induce the producer to stop the production and income levels will reduce. It will continue till ex-ante savings are equal to ex-ante investment.
(c) Investment increases with the increase in income. There is a positive relationship between income and induced investment which is done for profit motive. But, autonomous investment does not change with the change in income.
(a) MPC and MPS are related to the multiplier.
MPC is directly related and MPS is inversely related to the multiplier. The multiplier is 1/ (1-c).
(b) Economy cannot be at equilibrium when ex-ante savings are greater than ex-ante investments. It implies the fall in aggregate demand and increase in stock will induce the producer to stop the production and income levels will reduce. It will continue till ex-ante savings are equal to ex-ante investment.
(c) Investment increases with the increase in income. There is a positive relationship between income and induced investment which is done for profit motive. But, autonomous investment does not change with the change in income.
