In an economy, marginal propensity to save is 0.10. How much increase in investment is required so that national income rises by Rs. 400 crores?

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Solution

If increase in National Income is 400 crores and MPS= 0.10
Multiplier(k) => 400 / change in investment = 1/ MPS

=> 400 / change in investment = 1/0.10

=> 400 / change in investment = 10

=> change in investment = 400 / 10 = 40 crores.

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In an economy, marginal propensity to save is 0.10. How much increase in investment is required so that national income rises by Rs. 400 crores?

If increase in National Income is 400 crores and MPS= 0.10 Multiplier(k) => 400 / change in investment = 1/ MPS => 400 / change in investment = 1/0.10 => 400 / change in investment = 10 => change in investment = 400 / 10 = 40 crores.

If increase in National Income is 400 crores and MPS= 0.10
Multiplier(k) => 400 / change in investment = 1/ MPS

=> 400 / change in investment = 1/0.10

=> 400 / change in investment = 10

=> change in investment = 400 / 10 = 40 crores.