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In an Economy an Increase in Investment by Rs 100 Crore Led to ‘Increase’ in National By Rs 1000 Crore. Find Marginal Propensity to Consume. - Economics

In an economy an increase in investment by Rs 100 crore led to ‘increase’ in national by Rs 1000 crore. Find marginal propensity to consume.

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Solution

Given that

Change in investment (ΔI)=Rs 100crore

Change in income(ΔY) = Rs 1,000crore

We know that

`1/(1-MPC) " where MPC is equal to marginal propensity to consume"`

`1/(1-MPC)=1000/100=10`

1=10-10MPC

10MPC=9

MPC=0.9

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