Question

in an economy ,a 20% increase in investment results in 100% increase in income . Calculate the marginal propensity to consume (MPC).

Answer 1

K ( investment multiplier )
`(DeltaY)/(DeltaI)`
`=("%change in income")/("% change in investment")`
`=(100)/(20 )=5`
`MPS=(1)/(MPS)=(1)/(5)=0.2`
MPC =1-MPS`
`=1-0.2=0.8`