Question

3.There is an increase in investment of Rs 1000 cr in an economy. Marginal propensity to consume is
Zero. What is total increase in income? (Hint] Calculate with help of multiplier.
[3]

Answer 1

Explanation:

If the MPC is 0.75, the Keynesian government spending multiplier will be 4/3; that is, an increase of $ 300 billion in government spending will lead to an increase in GDP of $ 400 billion. The multiplier is 1 / (1 - MPC) = 1 / MPS = 1 /0.25 = 4.