CBSE 2023 Class 12 Economics Outside Delhi Set 3

© examsnet.com
Question : 3
Total: 5
For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume from 80% to 90% and change in investment to be 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 =I=2,000 crore
MPC =80%=0.80 (Before)
MPC =90%=0.90 (After)
Increase in Income =Y= ?
Investment Multiplier =k=
1
1MPC

=
1
10.90
=
1
0.10

=10 times
Now, k=
Y
I

10=
Y
2000

10×2000=Y
Y=20000 crore
© examsnet.com
Go to Question: