Question

4. What is the value of MPC, if an additional investment of 40 crores leads to an increase of 100
crores in the income?
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Answer 1

Answer:

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.

Multiplier(k) => Change in income / change ininvestment = 1/ (1-MPC)

=> 100/40 = 1/(1- MPC)

=> 10 - 10 MPC = 4

=> 10 MPC = 6

=> MPC = 0.6.