Question

If MPC = 0.75, how much additional investment is required to increase income by Rs. 600? Find the multiplier.

Answer 1

K (multiplier) $=\frac{1}{1-\text{MPC}}$

$=\frac{1}{1-0.75}=\frac{1}{0.25}=4$

We know, $\text{K}=\frac{\Delta \text{Y}}{\Delta \text{I}}$

So that, $\Delta \text{I}=\frac{\Delta \text{Y}}{\text{K}}=\frac{600}{4}=150$

Thus additional investment of Rs. 150 is required to increase income by Rs. 600 and the value of multiplier is 4.