Macro

Income & Employment

Medium

A hypothetical economy tends to save only 25% of its additional income. How much additional income would be generated by it if the investment is increased by 50 crores?

50 crores.

100 crores.

200 crores.

250 crores.

✅ Correct Option: 3

Option 3: 200 crores -> When the economy saves 25% of additional income, the Marginal Propensity to Save (MPS) = 0.25. The multiplier (k) = 1/MPS = 1/0.25 = 4. Therefore, additional income generated = Multiplier × Investment increase = 4 × 50 crores = 200 crores. This demonstrates the multiplier effect where initial investment creates a ripple effect of spending and income generation throughout the economy. -> correct

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The Paradox of Thrift means :

2025: 29 May Shift 1

Arrange the following in correct sequence according to their occurance.

(A) Reduction in cash reserve ratio by the Reserve Bank.

(B) Involuntary unemployment situation in the economy.

(D) Aggregate demand falls short of aggregate supply, corresponding to full employment in the economy.

Choose the correct answer from the options given below:

2026: 20 May Shift 1

In an economy, C= 100 + 0.7Y and investment is 500 crores. Find the equilibrium level of income.

2025: 28 May Shift 2

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2026: 21 May Shift 2

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2025: 15 May Shift 1

Identify the correct expression to calculate equilibrium level of income of an economy.

A hypothetical economy tends to save only 25% of its additional income. How much additional income would be generated by it if the investment is increased by 50 crores?

Solution

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