An increase of Rs. 250 crore in investment in an economy results in income increasing by three times more than the increase in investment. Calculate the following.
a. Marginal propensity to save
b. Value of multiplier.
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Answer:
If the MPS= 0.25 and investment is increased by Rs. 200 crores.
Multiplier(k) => Change in Income / 200 = 1/ MPS
=> Change in Income / 200 = 1/0.25
=> Change in Income / 200 = 4
=>Change in Income = 4*200 = 800 crores
Consumption at equilibrium level of income,
Income= Consumption+ Investment
=> Y= C+I
=> C= Y-I
=> C = 800-200
= 600 crores
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