Question

In an economy, MPC = 0.8. If investment increases by ₹ 500 crore, calculate the increase in income.

Answer 1

We know that K = `(ΔY)/(ΔI)`

∴ ΔY = K.ΔI

We also know that K = `1/ (1 − c)`

∴ `ΔY = 1/(1 − c) xx ΔI`

= `1/(1 − 0.8) xx 500`

= `1/0.2 xx 500`

 = `10/2 xx 500`

= ₹ 2500