Question

An increase in investment by Rs. 400 crores leads to increase in National Income by Rs. 1,600 crores. Calculate marginal propensity to consume.

Answer 1

Increase in Investment is Rs. 400 crores and increase in income is Rs. 1,600 crores,

Multiplier(k) => Change in income / change in investment = 1/ MPS

=> 1,600/400 = 1/MPS

=>4 = 1/ MPS

=> MPS = 1/ 4 = 0. 25