In an economy, the value of Marginal Propensity to Save ...

CBSE 2023 Class 12 Economics Delhi Set 1

Question : 13

Total: 49

In an economy, the value of Marginal Propensity to Save (MPS) is 0.25, what will be the value of increase in income, if investments increased by ₹200 crores?

₹200 crores
₹1,000 crores
₹ 150 crores
₹800 crores

Solution:

(d) ₹800 crores
Explanation:
Given: Increase in Investment =∆I=200 crore
‌ MPS ‌=0.25
To Find: Increase in Income =∆Y= ?
Solution:
‌ Here, ‌ MPC+MPS‌=1
MPC+0.25‌=1
MPC=1−0.25‌=0.75
‌ Investment Multiplier ‌‌ =k=‌

1−MPC

‌=‌

1−0.75

=‌

0.25

‌=4
Now, k‌=‌

∆Y

∆I

4‌=‌

∆Y

200

4×200‌=∆Y
∆Y‌=₹800‌ crore ‌

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