Question : The marginal propensity to consume (MPC) is 0.8. If there is an autonomous increase in investment spending of INR 1,500, what will be the change in equilibrium income?
Option 1: INR 1,200
Option 2: INR 1,500
Option 3: INR 7,500
Option 4: INR 6,000
Correct Answer: INR 7,500
Solution : The correct answer is (c) INR 7,500
To calculate the change in equilibrium income resulting from an autonomous increase in investment spending, we need to use the multiplier effect. The multiplier (K) is given by the formula: K = 1 / (1 - MPC).
Given: MPC = 0.8
Autonomous increase in investment spending = INR 1,500
Multiplier (K) = 1 / (1 - 0.8) = 1 / 0.2 = 5
Change in equilibrium income = Multiplier * Autonomous increase in investment spending
Change in equilibrium income = 5 * 1500 = 7500
Therefore, the change in equilibrium income is INR 7,500.
Question : The marginal propensity to consume (MPC) is 0.75. If there is an autonomous increase in investment spending of INR 1,000, what will be the change in equilibrium income?
Option 1: INR 750
Option 2: INR 1,000
Option 3: INR 1,333.33
Option 4: INR 4,000
Question : The investment multiplier is 4. If there is an autonomous increase in investment spending of INR INR 1,000,
what will be the change in equilibrium income?
Option 1: INR 1,000
Option 2: INR 4,000
Option 3: INR 5,000
Option 4: INR 9,000
Question : The investment multiplier is 4. If there is an autonomous increase in investment spending of INR 500, what will be the change in equilibrium income?
Option 1: INR 500
Option 2: INR 2,000
Option 3: INR 1,000
Option 4: INR 2,500
Question : The investment multiplier is 3. If there is an autonomous increase in investment spending of INR 800, what will be the change in equilibrium income?
Option 1: INR 2,300
Option 2: INR 2,400
Option 3: INR 2,800
Option 4: INR 3,200
Question : The marginal propensity to consume (MPC) is 0.9. If disposable income increases by INR 2,000, what will be the increase in consumption?
Option 1: INR 1,800
Option 2: INR 1,600
Option 3: INR 2,000
Option 4: INR 2,200
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