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Question

If MPS is 0.3 and the income increases from Rs. 6,000 crores to Rs. 9,000 crores, what will be the additional consumption in the economy?

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Solution

If change in income= Rs. 3,000 crores and marginal propensity to save = 0.3
Change in savings= 3000* 0.3= Rs. 900 crores
Change in consumption= 3000-900= Rs. 2,100 crores.

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