Page 1 - lesson note--Income Determination and Multiplier44b
P. 1
SAI INTERNATIONAL SCHOOL
ECONOMICS
Class-XII
CHAPTER 8
Income determination and multiplier
(Module- 44-B)
TOPICS TO BE COVERED-
-Multiplier
-Relationship between MPC and multiplier
-Relationship between MPS and multiplier
-Full employment equilibrium
- Under full employment equilibrium
-Over full employment equilibrium
- short run fixed price analysis of product market
Meaning of Multiplier: -it refers to actual process where by a multiple increase
in income is brought about by increased expenditure on consumption due to
new investment”
In other words, multiplier refers to the ratio of change in income to
∆
change in investment, i.e. =
∆
Working of Multiplier: -
• Investment generates employment and income in the hands of factors of
production.
• Additional income causes a change in consumption which depends on
MPC.
• Additional consumption expenditure generates additional income or
producers of the goods and services.
