Question

An increase ₹250 crores in investment in an economy resulted in total increase in income of ₹1000 crore. Calculate the following : (a) MPC (b) Change in savings (c ) Change in consumption expenditure (d) Value of multiplier.

Answer 1

Multiplier(K)=`(DeltaY)/(DeltaI)=1000/250` or K=4
`K=1/(1-MPC)`
`4=1/(1-MPC)` or 4-4MPC
4MPC=3 or `MPC=3/4=0.75`
`MPC=(DeltaC)/(DeltaY)` or `0.75=(DeltaC)/1000`
`DeltaC=₹750 ` crore
`DeltaS=DeltaY-DeltaC=1000-750=₹250` crore