Relation between Investment Multiplier K and MPC

Relation between K and MPC - Teachoo.JPG

How is the formula derived - Teachoo.JPG

Income =Consumption + Investment - Teachoo.JPG

K and MPC have Direct  Relation - Teachoo.JPG


Example 1.

Calculate multiplier if MPC is:

(i) 0.75;

(ii) 0.90.

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Example 3.

In an economy, income generated is four times the increase in investment expenditure. Calculate the values of MPC and MPS.

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Example 16.

In an Investment 75 percent of the increase in income is spent on consumption Investment is increased by Rs 1,000crore. Calculate:(a)total increase in income;(b)total increase in consumption expenditure.

MPC =0.75

Change in Investment = 1000

a) change in income

b) Change in consumption

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Example 17.

An increase of ₹ 250 crores in investment in an economy resulted in total increase in income of ₹ 1,000 crores. Calculate the following:

(a) Marginal propensity to consume (MPC),

(b) Change in Saving,

(c) Change in consumption expenditure,

(d) Value of multiplier.


Change in investment = 250

change in income = 1000

a MPC = ?

b Change in savings = ?

c change in consumption = ?

d K = ?

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Example 18.

In an economy, income increases by 10,000 as a result of a rise in investment expenditure by 1,000 calculate;

(a)Investment Multiplier;

(b)Marginal Propensity to consume.

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Example 19

In an economy, an increase in investment leads to increase in national income which is three times more than the increase in investment. Calculate marginal propensity to consume.

Example 19 - Teachoo.jpg

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NCERT Questions

No questions in this part

Other Books

Question 1

How is Investment Multiplier related to MPC?

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Question 2

Calculate the value of multiplier, if MPC is:

(i) 0.6

(ii) 0.5

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Other Books

Question 3

How much additional income will be generated in an economy with an additional investment of Rs 100 crores and when half of increase in income is spent on consumption?

Change in Investment = 100

MPC = 0.5

Change in Income = ?

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo