Question

As a result of increase in investment by Rs. 60 crore, national income rises by Rs. 240 crore. Calculate marginal propensity to consume.

Answer 1

Increase in Investment is Rs. 60 crores and increase in income is Rs. 240 crores,

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

=> 240/60 = 1/MPS

=>4 = 1/ MPS

=> MPS = 1/ 4 = 0. 25