In an economy, the increase in income is five times the increase in investment expenditure. Calculate the values of MPC. (0.80)

Open in App

Solution

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.
Multiplier(k) => Change in income / change ininvestment = 1/ (1-MPC)
=> 5 = 1/(1- MPC)
=> 5 - 5 MPC = 1
=> 5 MPC = 4
=> MPC = 0.80

Suggest Corrections

Similar questions

Q. In an economy, income generated is four times the increase in investment expenditure. Calculate the values of MPC and MPS.

Q. In an economy, Investment increases by Rs. 200 crores. As a result, the total income increases by 1,000 crores. Calculate the MPC. (0.80)

In an economy, investment expenditure increases by Rs. 400 crores and marginal propensity to consume is 0.8. Calculate the increase in income and increase in savings.

Q. The saving function of an economy is given as:

S = - 40 + 0.4 (Y)

. Calculate the total increase in income if investment expenditure increases by

R s .700

crores.

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

Join BYJU'S Learning Program