Question

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

Answer 1

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