Question

If the initial increase in autonomous investment ₹ 100 Cr and MPC = 0.8, calculate the increase in income.

Answer 1

Change in Autonomous Investment (ΔI) = ₹ 100 Cr.

Marginal Propensity to Consume (MPC) = 0.80

Hence, The Multiplier (K) = `1/1 - "MPC"`

= `1/1 - 0.80`

= 5

So, the increase in income (ΔY) = ΔI × K

= 100 × 5

= 500

Hence, the increase in income is ₹ 500 Cr.