Question

79. In an economy, investment increased by 1,100 and as a result of it, income increased by 5,500. Had
the marginal propensity to save been 25 percent, what would have been the increase in income?
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Answer 1

Answer:

In an economy, investment increased by 1,100 and as a result of it, income increased by 5,500. Had the marginal propensity to save been 25 percent, what would have been the increase in income?

(Increase in Income = 4,400)

Explanation:

Multiplier(k) => Change in income / change in investment = 1/ MPS

=> change in income/ 1,100 = 1/0.25

=> change in income/ 1,100 = 4

=> change in income = 4 * 1,100 = 4,400

Hence, income increases by 4,400..