Question

An increase in investment in a country leads to increase in national income by Rs. 200 crores. If marginal propensity to consume is 0.75, what is the increase in investment? Calculate.

Answer 1

Increase in National Income is Rs. 200 crores and MPC = 0.75

Multiplier(k) => 200 / change in investment = 1/ (1- MPC)

=> 200 / change in investment = 1/0.25

=> 200 / change in investment = 4

=> change in investment = 200 / 4 = 50 crores.