Question

21.SUPPOSE IN HYPOTHETICAL ECONOMY, THE SAVING INCREASE BY Rs 20 WHEN NATIONAL INCOME INCREASE BY Rs 100. COMPUTE THE ADDITIONAL INVESTMENTS NEEDED TO ATTAIN AN INCREASE IN NATIONAL INCOME BY Rs 6000 ?

Answer 1

Answer:

There is a need to increase investment by ₹ 1,200 crores.

Explanation:

In an economy the savings increases by ₹ 20 crores when income increases by ₹ 100 crores.

The marginal propensity to save is the ratio of change in savings due to a change in income.

Marginal propensity to save

=  

=  

= 0.2

The investment multiplier measures the change in the income due to a change in the investment.

Investment multiplier

=  

=  

= 5

Increase in investment required to increase income by ₹ 6,000 crores

=  

= ₹ 1,200