Question

It Is planned to make a view Investment of Rs. 1,000 crores in the economy. How much will be the increase in National Income If marginal propensity to save is 0.4? Calculate.

Answer 1

If investment increases by Rs. 1,000 crores and MPS= 0.4, then

Multiplier(k) => Change in income / 1,00 = 1/ MPS

=> Change in income/ 1,000 = 1/0.4

=> Change in income / 1,000 = 2.5

=> change in income = 2.5 (1,000) = 2500 crores.

Hence, National income increases by 2500 crores.