In an economy, the Marginal Propensity to Consume is 0 75 Investment expenditure in the economy increases by Rs - Economics - Determination of Income and Employment

Question

In an economy, the Marginal Propensity to Consume is 0 75
Investment expenditure in the economy increases by Rs 75 crore
Calculate the total increase in National Income

Shvetika Sharma · Accepted Answer

Dear student,
It is given that MPC = 0 75
So, MPS = 1-0 75 = 0 25

Multiplier = 1 / MPS = 1/0 25 = 4

Now,
Multiplier = Change in income / Change in investment
4 = change in income / 75
So, change in income = 75 *4 = Rs 300 crore

In an economy, the Marginal Propensity to Consume is 0.75. Investment expenditure in the economy increases by Rs 75 crore. Calculate the total increase in National Income