For this we need to increase the memory size of the Emulator...

I was searching for the answer to this question, and was unsatisfied with the above answers. But then I found the answer, so here it is for future reference:
To summarize (and clarify), in Eclipse, go to "Debug Configurations". You can find that in the drop-down under the "debug" icon. Select "target", and select a preferred emulator target to launch. Then under "additional emulator command line options," add this:
-partition-size 1024
Then CLOSE the emulator (and remove any devices), and click the debug icon, which will launch the preferred emulator you selected. This is important: Eclipse needs to launch the debugger, not AVD.
That fixed the problem for me.
Here is the sample Diagram for that:



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