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Direct & Indirect Taxes

If MPS is 0.3...

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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