Check sibling questions

Calculate Change in Income (ΔY) for a hypothetical economy. Given that:

a) Marginal Propensity to Consume (MPC) = 0.8, and

b) Change in Investment (ΔI)      = ₹1,000 crores

(2 Marks)

Answer

Given Δ I = ₹1,000 crores

MPC = 0.8

As we know,

Multiplier (K) = (1/1-MPC)

K= (1/1-0.8)

K= (1/ 0.2)

K= 5 times      

We know K = ΔF/ Δ I

5 = 𝛥 F/1000

ΔY = ₹ 5,000 crores

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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.