If in an economy, out of every additional Rs.100 of national income, Rs.20 is taxed, Rs.20 is saved, and Rs.10 is spent on imports, then the value of multiplier is:
A)2
B)2.5
C)3.3
D)5

Question

Quizplus · Accepted Answer

The multiplier (k) is calculated as 1/(MPS + MPT + MPM), where MPS is the marginal propensity to save, MPT is the marginal propensity to tax, and MPM is the marginal propensity to import. Here, MPS = 0.2, MPT = 0.2, and MPM = 0.1. So, k = 1/(0.2 + 0.2 + 0.1) = 1/0.5 = 2.

If in an Economy, Out of Every Additional Rs