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CBSE 2023 Class 12 Economics Outside Delhi Set 3

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Question : 3 of 5
Marks: +1, -0
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume from 80%80\% to 90%90\% and change in investment to be ₹2000\text{₹} 2000 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=2,000=\Delta I=2,000 crore
 MPC =80%=0.80 (Before) \text{ MPC }=80\%=0.80\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=ΔYΔIk=\frac{\Delta Y}{\Delta I}
10=ΔY200010=\frac{\Delta Y}{2000}
10×2000=ΔY10\times 2000=\Delta Y
ΔY=20000 crore\Delta Y=20000\text{ crore}
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