New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    If the marginal propensity to save is 0.3 and the

    marginal propensity to import is 0.1, and the government increases expenditures by Rs. 10 billion, ignoring foreign-income repercussions, by how much will GDP rise?
    A Rs. 15 billion Correct Answer Incorrect Answer
    B Rs. 10 billion Correct Answer Incorrect Answer
    C Rs. 20 billion Correct Answer Incorrect Answer
    D Rs. 25 billion Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    Multiplier = 1/(1-c+m) = 1/(1-0.7+0.1) = 1/0.4 = 2.5 Change in GDP = 2.5 Change in G = 2.5 (10) = 25

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