Economics

Mechanism of multiplier

In this Class 12 Economics topic from “Determination of Income and Employment,” students learn how an initial change in autonomous investment or expenditure produces a multiplied change in national income. The topic explains successive rounds of income generation, the role of consumption, saving, marginal propensity to consume (MPC), and marginal propensity to save (MPS), and the relationship between them. Students also understand the investment multiplier, its formula, and how it helps explain equilibrium income and employment.

Medium · Level 1 · 1 questions

Practice questions

01What is the basic idea behind the government expenditure multiplier in the simple Keynesian model?

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Answer and explanation

Correct answer: A. An initial increase in expenditure can lead to a multiplied increase in income

In the simple Keynesian model, an initial increase in government spending becomes income for its recipients. They spend part of that income, which becomes income for others, creating further rounds of spending. Under the model’s assumptions, the total increase in income can therefore exceed the initial increase in spending.

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Mechanism of multiplier

Practice questions

01What is the basic idea behind the government expenditure multiplier in the simple Keynesian model?सरल कीन्सीय मॉडल में सरकारी व्यय गुणक का मूल विचार क्या है?

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01What is the basic idea behind the government expenditure multiplier in the simple Keynesian model?