Question

What is the value of MPC, if an additional investment of Rs. 40 crores leads to an increase of Rs. 100 crores in the income? (0.60)

Answer 1

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)

=> 100/40 = 1/(1- MPC)

=> 10 - 10 MPC = 4

=> 10 MPC = 6

=> MPC = 0.6.