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
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…
CUET UG 2025 — Economics Macro
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?
Held on 21 May 2025 · Verified 13 Jul 2026.
Options
- A
50 crores.
- B
100 crores.
- C
200 crores.
- D
250 crores.
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