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Calculate Change in Final Income, If Marginal Propensity to Consume (Mpc) is 0.8 and Change in Initial Investment is ₹ 1,000 Crores. - Economics

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Numerical

Calculate the change in final income, if Marginal Propensity to Consume (MPC) is 0.8 and change in initial investment is ₹ 1,000 crores.

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Solution

The marginal propensity to consume = 0.8

The change in the initial investment = Rs 1000

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

= `1/(1-0.8)`

= 5

Multiplier K = `"change in income"/"change in investment"`

`5 = "change in income"/1000`

Change in income = 1000 x 5 = Rs 5000.

Concept: Consumption Function and Propensity to Save
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