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Excess & Deficient Demand · Question 42 of 53

Question 42

HardOriginal question

Equilibrium income is ₹400 crore, full-employment income is ₹500 crore and the MPC is 0.8. By how much must government spending rise to reach full employment?

Options for question 42

Show the answer and explanation
CorrectNot quiteAnswer A

Correct answer: A

Explanation

  1. Income must rise by 500 − 400 = 100; the multiplier is 1 ÷ 0.2 = 5.

  2. Required ΔG = 100 ÷ 5 = ₹20 crore.

Worth noting

₹100 crore is the rise in income needed; the multiplier means spending need rise only a fifth of that.

Concept
Spending needed to reach full employment
Typical time
100 s
Your time
—
The rule this testsFiscal measures
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