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Suppose, in an economy… (Class 12 Economics 2026, Q16b)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/5/1 · 6 marks · Long answer

CBSE Class 12 Economics 2026: question 16(b)

Set in the CBSE Class 12 board exam of 2026, paper 58/5/1, section A, question 16(b), for 6 marks. Try it first; the hints and our step-by-step solution are below.

Q16(b) · 6 marks · Long answerDetermination of Income and Employment

Suppose, in an economy, every ₹ 1 increase in investment expenditure leads to an increase of ₹ 4 in the National Income.
Calculate the following :

  1. (i)

    Value of Investment Multiplier (K).

    1 mark
  2. (ii)

    Change in consumption expenditure, if the income changes from ₹ 400 to ₹ 500.

    3 marks
  3. (iii)

    "Sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is always equal to one."
    Justify the given statement with the help of a suitable argument.

    2 marks

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/5/1.

Hints

Open one hint at a time and try again before the next.

Hint 1

Multiplier = change in income / change in investment.

Hint 2

K = 1/(1 − MPC).

Hint 3

Every extra rupee of income is either consumed or saved.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. (i) K = ΔY/ΔI = 4/1 = 4.

    1 mark

  2. (ii) K = 1/(1 − MPC), so 4 = 1/(1 − MPC), giving 1 − MPC = 0.25 and MPC = 0.75.

    1½ marks

  3. (ii) ΔY = 500 − 400 = 100. ΔC = MPC × ΔY = 0.75 × 100 = ₹ 75.

    1½ marks

  4. (iii) Income is either consumed or saved: Y = C + S, so ΔY = ΔC + ΔS. Dividing both sides by ΔY: 1 = ΔC/ΔY + ΔS/ΔY = MPC + MPS. So MPC + MPS is always 1.

    2 marks

Answer: (i) K = 4. (ii) MPC = 0.75, so ΔC = ₹ 75. (iii) ΔY = ΔC + ΔS, so MPC + MPS = 1.

Where the marks are

  • K = 4 (1)
  • MPC = 0.75 from K (1½)
  • ΔC = ₹ 75 (1½)
  • MPC + MPS = 1 derived (2)

Revise the chapter

Practise this chapterBoard-style questions from Determination of Income and Employment, one at a time, marked against the answer key and marking points.Back to the full paper2026 board paper, set 58/5/1: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.