Question

If MPC is 0.9, what is the value of the multiplier? How much investment is needed to increase national income by Rs 5,000 Crores

Options

• K = 10 and Δl = 500Cr.

• K = 15 and Δl = 1500Cr.

• K = 100 and Δl = 5000Cr.

• K = 15 and  Δl = 500Cr.

Answer 1

K = 10 and Δl = 500Cr.

Explanation:

Here ΔY = 5,000 Cr., MPC = 0.9, K = ?, ΔI =?

By formula K = `1/1 - "MPC"`

K = `-1/(1-0-9-) = 1/0.1`

K = 10

But K = `(Δ"Y")/(Δ"I")`

10 = 5000/(Δ"I")

ΔI = `5000/10` 

= 500Cr.

So, K = 10 and ΔI = 5000Cr.