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Cross-Price and Income Elasticities

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Question

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

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Solution

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

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