In an economy, investment increased by 1,100 and as a result of it, income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income?
(Increase in Income = 4,400)

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Solution

Multiplier(k) => Change in income / change in investment = 1/ MPS

=> change in income/ 1,100 = 1/0.25

=> change in income/ 1,100 = 4

=> change in income = 4 * 1,100 = 4,400
Hence, income increases by 4,400..

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In an economy, investment increased by 1,100 and as a result of it, income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income? (Increase in Income = 4,400)

Multiplier(k) => Change in income / change in investment = 1/ MPS => change in income/ 1,100 = 1/0.25 => change in income/ 1,100 = 4 => change in income = 4 * 1,100 = 4,400 Hence, income increases by 4,400..

In an economy, investment increased by 1,100 and as a result of it, income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income?
(Increase in Income = 4,400)

Multiplier(k) => Change in income / change in investment = 1/ MPS

=> change in income/ 1,100 = 1/0.25

=> change in income/ 1,100 = 4

=> change in income = 4 * 1,100 = 4,400
Hence, income increases by 4,400..