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CBSE 2023 Class 12 Economics Outside Delhi Set 2

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Question : 3 of 9
Marks: +1, -0
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from 80%80\% to 90%90\% and change in investment to be ₹1000\text{₹} 1000 crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume.
Solution:  
Given:
Increase in Investment =ΔI=⟨1,000=\Delta I=\langle 1,000 crore
 MPC =80%=0.30 (Before) \text{ MPC } = 80\% = 0.30 \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 - \text{MPC}}
=11−0.90=10.10= \frac{1}{1-0.90} = \frac{1}{0.10}
=10 times =10 \text{ times }
Now, k=ΔYΔIk = \frac{\Delta Y}{\Delta I}
10=ΔY1,00010 = \frac{\Delta Y}{1,000}
10×1,000=ΔY10 \times 1,000 = \Delta Y
ΔY=10,000 crore \Delta Y = 10,000 \text{ crore }
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