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.
Analysis of Assertion (A)
Assertion (A) states that an increase in autonomous investment causes a multiplied rise in national income. This aligns with the fundamental Keynesian concept of the investment multiplier. An initial injection of autonomous investment leads to increased aggregate demand, subsequent increases in production, income generation, and further consumption spending, creating a chain reaction that results in a larger overall increase in national income than the initial investment.
Therefore, Assertion (A) is true.
Analysis of Reason (R)
Reason (R) explains that the multiplied effect occurs because the marginal propensity to save (MPS) is less than one ($MPS < 1$). The investment multiplier is defined as $Multiplier = \frac{1}{1 - MPC)}$ or $Multiplier = \frac{1}{MPS}$. Since households save a portion of any additional income ($MPS > 0$) and consume another portion ($MPC > 0$), and $MPC + MPS = 1$, it follows that $MPS$ must be less than 1. A value of $MPS < 1$ ensures that the multiplier is greater than 1, leading to a multiplied change in national income.
Therefore, Reason (R) is true.
Explanation Link
Reason (R) directly explains why Assertion (A) is true. The mechanism of the multiplied rise in national income from autonomous investment relies entirely on the multiplier effect, the magnitude of which is determined by the MPS. Because $MPS < 1$, the multiplier is greater than 1, validating the assertion.
Thus, Reason (R) provides the correct explanation for Assertion (A).
Conclusion
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
Important Questions from National Income Accounting
Division of labour often involves
1. specialized economic activity.
2. highly distinct productive roles.
3. involving everyone in many of the same activities.
4. individuals engage in only a single activity and are dependent on others to meet their various needs.
Select the correct answer using the code given below:
Which of the following is NOT one of the methods of national income estimation?
Cash Reserve Ratio (CRR) is calculated as a percentage of each bank's _____.
What do you call a proportionate saving in costs gained by an increased level of production?
Which of the following statements is/are correct?
I. Only marketed goods and considered while estimating Gross Domestic Product (GDP).
II. The work done by a woman at her home is outside the purview of Gross Domestic Product.
III. In estimating GDP, only final goods and services are considered.
