Question

In an economy, MPS = 0.2. Investment increases by 500 crore. Calculate the total increase in income.

Answer 1

Marginal Propensity to Save (MPS) = 0.2

Increase in Investment (ΔI) = ₹ 500 crore

k = `1/(MPS)`

= `1/0.2`

k = 5

ΔY = k × ΔI

= 5 × 500

= ₹ 2,500 crore