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Suppose Marginal Propensity to Consume is 0.8. How Much Increase in Investment is Required to Increase National Income by Rs. 2000 Crore? Calculate. - Economics

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Suppose marginal propensity to consume is 0.8. How much increase in investment is required to increase national income by Rs. 2000 crore? Calculate.

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Solution

Giventhat

MPC = 0.8

ΔY = Rs 2000 crore

We know that

`K=1/(1-MPC)=1/(1-0.8)=5`

`K=(DeltaY)/(DeltaI)`

`K=2000/(DeltaI)`

ΔI = Rs 400 crore

Concept: Consumption Function and Propensity to Save
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