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CBSE 2019 Class 12 Economics Delhi Set 1

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Question : 8 of 19
Marks: +1, -0
If in an economy:
Change in initial investments (ΔI)=₹500(\Delta I)=\text{₹}500 crores
Marginal Propensity to Save (MPS) =0.2=0.2
Find the value of the following :
(a) Investment multiplier (k)
(b) Change in final income (ΔY)(\Delta Y)
Solution:  
Change in initial investment (ΔI)=₹500(\Delta I)=\text{₹}500 crores
Marginal propensity to save (MPS) =0.2=0.2
(a) Investment multiplier (K)=  1MPS(K)=\;\frac{1}{\text{MPS}}
  K=  1   MPS   \;K=\;\frac{1}{\;\text{ MPS }\;}
  K=  10.2\;K=\;\frac{1}{0.2}
  K=5\;K=5
(b) Change in final income (ΔY)(\Delta Y)
K  =  ΔYΔIK\;=\;\frac{\Delta Y}{\Delta I}
ΔY  =K×ΔI\Delta Y\;= K \times \Delta I
  =5×500\;=5 \times 500
  =₹2500   crores.   \;=\text{₹}2500 \;\text{ crores. }\;
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