There is an increase in investment by Rs. 200 crores. This has increased the income multifold. What will be the total increase in consumption if consumption function is C = 50 + 0.5Y?

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Solution

$C = 50 + 0.5 Y M P C = 0.5$
Y = 50 + 0.5Y + 200
$Y (1 - 0.5) = 250 o r Y = \frac{250}{0.5} = R s . 500 C r o r e s Y = C + I o r C = Y - I = R s .500 - R s . 200 = R s . 300 C r o r e s Δ C = R s . 300 - R s . 50$
= Rs. 250 Crores

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