Economics · Macroeconomics
Assertion (A): When investment is induced (a function of income), the multiplier effect on income is larger than when investment is autonomous — this is called the Super Multiplier. Reason (R): With induced investment I = Ī + αY, the equilibrium income condition Y = C + I becomes Y = C̄ + cY + Ī + αY, so the super multiplier = 1 / (1 − c − α), which is larger than the simple multiplier 1 / (1 − c) since α > 0.
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- 1A is false but R is true
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Both A and R are true, and R is the correct explanation of A
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