Question

In an economy 75 percent of the increase in income is spent on consumption. Investment increased by ₹ 1,000 crore.

Calculate the total increase in income on the basis of given information. 

Answer 1

MPC = 75% = 0.75

ΔI = 1,000

ΔY = ?

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

= `1/(1-0.75)` 

= `1/0.25`

= 4

K = `"ΔY"/"ΔI"` 

4 =  `"ΔY"/1000` 

`4 xx 1000` = ΔY

₹ 4,000 = ΔY

Thus, the increase in income = ₹ 4,000 crores.