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CBSE 2023 Class 12 Economics Outside Delhi Set 1

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Question : 19 of 52
Marks: +1, -0
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from 75%75\% to 90%90\% and change in investment to be ₹ 1,000\text{₹}\,1,000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume (MPC).
Solution:  
Given:
Increase in Investment =ΔI=1000=\Delta I=1000 crore
    MPC  =75%=0.75  (Before)  \;\;\text{MPC}\;=75\%=0.75\;\text{(Before)}\;
    MPC  =90%=0.90  (After)  \;\;\text{MPC}\;=90\%=0.90\;\text{(After)}\;
Increase in Income =ΔY==\Delta Y= ?
    Investment Multiplier  =k=  11−MPC\;\;\text{Investment Multiplier}\;=k=\;\frac{1}{1-MPC}
  =  11−0.90=  10.10\;=\;\frac{1}{1-0.90}=\;\frac{1}{0.10}
  =10  times  \;=10\;\text{times}\;
    Now,  k  =  ΔYΔI\;\;\text{Now,}\; k\;=\;\frac{\Delta Y}{\Delta I}
10  =  ΔY100010\;=\;\frac{\Delta Y}{1000}
10×1,000  =ΔY10 \times 1,000\;=\Delta Y
ΔY  =10,000  crore  \Delta Y\;=10,000\;\text{crore}\;
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