Given that
Value of MPC=0.9
Initial increase in investment =₹1000 crore
So, every increase of ₹1 in the income, 0.9 part of the increased income will be consumed by people.
Consumption =₹0.90
Saving =₹0.10
It is given that initial increase in investment of ₹1000 will lead to change in the income by ₹1000 in the first round. As MPC is 0.9 so people will consume 0.9 of the increased income i.e., ₹900 there by saving ₹100. In the next round due to increase in the consumption expenditure by ₹900 there will be an increase in income by ₹900. Then people will again spend the increased income i..., ₹810 and save the rest part of the income ₹90. Similarly, this process will continue and the income will go on increasing as a result of the increase in consumption. The total change in the income is ₹10,000 and the change in the investment will be ₹1,000.