Question

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

• A. Rs 600, 4
• B. Rs 600, 5
• C. Rs 500, 5
• D. Rs 500, 4

Answer 1

The correct option is A

Rs 600, 4

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

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

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

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

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