The value of additional investment made by the government is ₹ 500.
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Question
Find the value of additional investment made by the government when MPC = 0.5 and the increase in income (ΔY) = ₹ 1000.
Numerical
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Solution
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
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