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Relationship between the TR, MR and Demand Curves

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Question

By increase in investment of Rs.100 cores, national income of a country increases by Rs. 250 crores. And out the marginal propensity to consume.

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Solution

Increase in Investment is Rs. 100 crores and increase in income is Rs. 250 crores,
Multiplier(k) => Change in income / change in investment = 1/ MPS

=> 250/100 = 1/MPS

=>2.5 = 1/ MPS

=> MPS = 1/ 2.5 = 0.4

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