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In an Economy Investment is Increased by Rs. 300 Crore. If Marginal Propensity to Consume is 2/3, Calculate Increase in National Income. - Economics

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In an economy investment is increased by Rs. 300 crore. If marginal propensity to consume is 2/3, calculate increase in national income.

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Solution

Given that

MPC = 2/3 = 0.67

Change in investment (ΔI) = Rs 300crore

We know that

k(multiplier) = 1/(1-MPC) = 1/(1-0.67) = 3.03

k = ΔY/ΔI

3.03 = ΔY/300

ΔY = Rs 909crore

Concept: Consumption Function and Propensity to Save
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