Question

In an economy an increase in investment by Rs 100 crore led to ‘increase’ in national by Rs 1000 crore. Find marginal propensity to consume.

Answer 1

Given that

Change in investment (ΔI)=Rs 100crore

Change in income(ΔY) = Rs 1,000crore

We know that

`1/(1-MPC) " where MPC is equal to marginal propensity to consume"`

`1/(1-MPC)=1000/100=10`

1=10-10MPC

10MPC=9

MPC=0.9