In an economy the marginal propensity to consume is 0.75. Investment expenditure in the economy increases by Rs. 75 crore. Calculate the total increase in national income.

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Solution

If investment increases by Rs. 75 crores and MPC= 0.75, then
Multiplier(k) => Change in income / 75 = 1/ (1-MPC)
=> Change in income/ 75 = 1/0.25
=> Change in income / 75 = 4
=> change in income = 4(75) = 300 crores
Hence, National income increases by 300 crores.

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In an economy the marginal propensity to consume is 0.75. Investment expenditure in the economy increases by Rs. 75 crore. Calculate the total increase in national income.

If investment increases by Rs. 75 crores and MPC= 0.75, then Multiplier(k) => Change in income / 75 = 1/ (1-MPC) => Change in income/ 75 = 1/0.25 => Change in income / 75 = 4 => change in income = 4(75) = 300 croresHence, National income increases by 300 crores.

If investment increases by Rs. 75 crores and MPC= 0.75, then
Multiplier(k) => Change in income / 75 = 1/ (1-MPC)
=> Change in income/ 75 = 1/0.25
=> Change in income / 75 = 4
=> change in income = 4(75) = 300 crores
Hence, National income increases by 300 crores.