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The Multiplier Mechanism

If increase i...

Question

If increase in investment is Rs. 125 crores and increase in national income is Rs. 500 crores, calculate marginal propensity to save.

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Solution

Increase in Investment is Rs. 125 crores and increase in income is Rs. 500 crores,
Multiplier(k) => Change in income / change in investment = 1/ MPS
=> 500/125 = 1/MPS
=>4 = 1/ MPS
=> MPS = 1/ 4 = 0. 25.

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