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Question

In an economy, the government makes some additional investment. Find its value when MPC = 0.5 and increase in income = Rs. 1,000.


Solution

We know,

K (multiplier) =ΔYΔI

We also know that, K=11MPC

Substituting the value of MPC, K=ΔYΔI and ΔY=1,000

Thus, 1,000ΔI=2

ΔI=1,0002=500

Additional investment by the government =Rs. 500


Economics

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