This question was previously asked in
Shift 16/06/2023 3:30 PM - 6:30 PM
Correct Answer
Here's the reasoning behind the correct chain of action:
1. C. MPC rises (Marginal Propensity to Consume): When the MPC rises, it means that people are more willing to spend a larger portion of their income. This increased propensity to consume leads to higher aggregate demand in the economy.
2. A. Investment multiplier rises: With an increase in aggregate demand resulting from a higher MPC, the investment multiplier tends to rise. The investment multiplier represents how much an initial change in spending (investment) leads to a larger change in overall income.
3. D. Income rises: As the investment multiplier rises and overall demand increases, businesses experience higher demand for their goods and services. To meet this demand, they hire more workers and expand production, leading to an increase in income for households.
4. B. Economy grows: The growth of income and increased economic activity, driven by higher consumer spending and investment, results in overall economic growth.
So, the correct chain of action is C, A, D, B, reflecting the sequence of events when the MPC rises, leading to economic growth.
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