Read the below statements marked as Assertion (A) and Reason (R). Mark the correct option: Assertion (A): Increase in autonomous investment leads to a multiplied rise in national income. Reason (R): This happens because of the marginal propensity to save being less than one.

Correct — A. A is true. A rise in autonomous investment raises national income by a multiple of itself.

R is true and explains A. NCERT's investment multiplier is
k = ΔY ⁄ ΔI = 1 ⁄ (1 − MPC) = 1 ⁄ MPS
With MPS less than 1, k is greater than 1.

NCERT's case: MPC 0.8, so MPS 0.2 and k = 5. An extra investment of 10 raises income by 50 → option (a).

Why the others are wrong

• (b)
  Both A and R are true, but R is not the correct explanation of A. — R is not a side fact. Since k = 1 ⁄ MPS, an MPS below 1 is exactly what pushes the multiplier above 1 — R is the reason income rises by a multiple.
• (c)
  A is true, but R is false. — R is true: people save only part of extra income, so the MPS lies below 1. If they saved all of it, MPS = 1 would give k = 1 and no multiplied rise.
• (d)
  A is false, but R is true. — A is true. Each round of spending becomes someone's income, part of which is spent again, so the total rise in income exceeds the first investment.

In the Keynesian model, autonomous investment does not depend on income. When it rises, that spending becomes someone's income. They spend a fraction, the MPC, and save the rest, the MPS.

The spent part becomes income again, round after round, and the rounds add up to k × ΔI. The multiplier k is larger when more of each round is spent.

Key facts

• Investment multiplier: k = ΔY ⁄ ΔI = 1 ⁄ (1 − MPC) = 1 ⁄ MPS.
• MPC + MPS = 1, since extra income is either consumed or saved.
• NCERT's worked case: MPC 0.8 gives k = 5, so an extra investment of 10 raises income by 50.
• The larger the MPC, the larger the multiplier.

Common traps

• Writing k = 1 ⁄ MPC — the multiplier is 1 ⁄ MPS, or 1 ⁄ (1 − MPC).
• Confusing the investment multiplier with the money multiplier, which works through bank deposits and reserves.

No directly related past PYQ was found.