Question

Calculate Change in Income (ΔY) for a hypothetical economy. Given that:

1. Marginal Propensity to Consume (MPC) = 0.8, and
2. Change in Investment (ΔI) = Rs. 1,000 crores

Answer 1

Given Δ I = Rs. 1,000 crores

MPC = 0.8

As we know,

Multiplier (K) = `1/(1 - "MPC") = 1/(1 - 0.8) = 1/0.2 = 5` times

We know,

`"K" = (triangle"Y")/(triangle"I")`

`5 = (triangle"Y")/1000`

ΔY = Rs. 5,000 crores