Question

If marginal propensity to consume is 0.9, what is the value of multiplier ? How much investment is needed, if national increases by Rs. 5,000 crores?

Answer 1

Correct Answer - Multiplier (k) = 10; Increase in investment =Rs.500 crores
Multiplier (k) `=(1)/(1-MPC)=(1)/(1-0.90)=(1)/(0.10)=10`
We also know: k`("Change in Income"(DeltaY))/("Change in Investment"(Deltal))`
`10=(5,000)/("Change in Investment"(Deltal))`
Hence, Change in Increase in investment =Rs. 500 crores.