Advertisement Remove all ads

In an Economy, Investment Increased by 1,100 and as a Result of It Income Increased by 5,500. Had the Marginal Propensity to Save Been 25 Percent, What Would Have Been the Increase in Income? - Economics

Short Note

Answer the following question.
In an economy, investment increased by 1,100 and as a result of it income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income? 

Advertisement Remove all ads


In an economy, if the investment increased by 1,100  and had the marginal propensity to save been 25 percent, then the increase in income can be calculated as follows:

`"k" = (1)/"MPS" = (Δ"Y")/(Δ"I")`

`"k" = (1)/(0.25) = (Δ""Y")/(1100)`

or, `(1)/(0.25) = (Δ"Y")/(1100)`

So, ΔY = 4,400

Thus, we can observe that an increase in the investment by Rs 1,100 will result in an increase in income and output by Rs 4,400.

Concept: Consumption Function and Propensity to Save
  Is there an error in this question or solution?
Advertisement Remove all ads
Advertisement Remove all ads

Video TutorialsVIEW ALL [1]

Advertisement Remove all ads

View all notifications

      Forgot password?
View in app×