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CUET Economics 2025 PYQs21 May Shift 1. Free, no login required.

Macro

past year questions, CUET Economics 2025 21 May Shift 1

Income & Employment

past year questions, Macro, CUET Economics 2025 21 May Shift 1

Medium

In an economy, the consumption curve and saving curve are parallel to each other. What will be the value of investment multiplier in this economy?

Solution

✅ Correct Option: 2

Option 1 -> If multiplier is 1, then MPS = 1 and MPC = 0, meaning consumption and saving curves cannot be parallel.

Option 2 -> When consumption and saving curves are parallel, their slopes are equal, meaning MPC = MPS. Since MPC + MPS = 1, we get MPC = MPS = 0.5. Therefore, multiplier = 1/MPS = 1/0.5 = 2.

Option 3 -> If multiplier is 5, then MPS = 0.2 and MPC = 0.8, making the slopes unequal, so curves cannot be parallel.

Option 4 -> If multiplier is infinity, then MPS = 0 and MPC = 1, meaning consumption and saving curves cannot be parallel.

Hence, Option 2: 2 -> When consumption curve and saving curve are parallel, they have equal slopes. Slope of consumption curve = MPC and slope of saving curve = MPS. Therefore, MPC = MPS. Since MPC + MPS = 1, we get 2(MPC) = 1, so MPC = 0.5 and MPS = 0.5. The investment multiplier (k) = 1/MPS = 1/0.5 = 2. -> correct

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