Question

Find the value of additional investment made by the government when MPC = 0.5 and the increase in income (ΔY) = ₹ 1000.

Answer 1

Given: MPC = 0.5, ΔY = ₹ 1,000

MPC = `(ΔC)/(ΔY)`

`0.5 =(ΔC)/(1,000)`

ΔC = 0.5 × 1000

ΔC = 500

K = `(1)/(1 - "MPC")`

= `(1)/(1 - 0.5)`

= `1/0.5`

= 2

ΔI = `(ΔY)/K`

= `(1000)/(2)`

= 500

The value of additional investment made by the government is ₹ 500.