Skip to content
Worked Examples · Example 39

Q.Economy Stimulation: The government through a subsidy program infuses 10 lakh crore to boost the sagging economy. If we assume each state or UT spends 80% of what is received on infrastructure, health and industry, and in turn each institution or agency spends 80% of what is received, and so on, how much total increase in spending results from this government action?

Sikkim CbseNCERTSubjective· 2mImportance★★★★★est
99% · 105/106 Questions
🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

This is the classic "spending multiplier" set-up: an initial government injection is re-spent at 80%80\% by each successive recipient, and the total resulting economic spending is the sum of that infinite chain — modelled as an infinite geometric series.

If an initial amount XX is injected and each recipient spends a fraction rr of what they receive (who is in turn received by the next, who spends rr of THAT, and so on), the total additional spending generated is

Total spending=Xr+Xr2+Xr3+⋯=Xr1−r(∣r∣<1)\text{Total spending} = Xr + Xr^2 + Xr^3+\cdots = \frac{Xr}{1-r} \quad (|r|<1)

  1. Given: initial government infusion X=10 lakh crore=₹10,00,000 croreX = 10 \text{ lakh crore} = ₹10{,}00{,}000 \text{ crore}; each state/UT (and each subsequent institution) spends r=80%=0.8r=80\% = 0.8 of what it receives.
  2. First round of spending (states/UTs spend 80%80\% of the ₹1010 lakh crore they received):

Xr=10×0.8=8 lakh croreXr = 10 \times 0.8 = 8 \text{ lakh crore}

  1. Second round (the next set of institutions spends 80%80\% of THAT ₹88 lakh crore): Xr2=10×(0.8)2=10×0.64=6.4 lakh croreXr^2 = 10\times(0.8)^2 = 10\times0.64=6.4 \text{ lakh crore} …

Unlock everything free for 14 days

  • Full step-by-step solutions
  • Concept-first explanations
  • Methods, shortcuts & mistakes
  • PYQ mapping + timed mock tests

Full access for 14 days. No credit card required.