© 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.
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 =
=
=
= 10 times
Now,k =
10 =
10 × 2000 = ∆ Y
∆ Y = 20000 crore
Increase in Investment
Increase in Income
Now,
© examsnet.com
Go to Question: