If investment increases from 400 to 600 and income increases from 3,000 to 4,000, the MPS should be equal to

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Solution

Multiplier (M) = $\frac{Δ Y}{Δ A}$

= $\frac{(4000 - 3000)}{(600 - 400)}$

= 5

MPS = $\frac{1}{M}$

= $\frac{1}{5}$

= 0.2

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