Question

Calculate the mpc if an economy autonoumous counsuption is 500, investment is 4000 and equilibruim level of income of the economy is 18000

Answer 1

At equilibrium level of an economy Y=C+I

Given, autonomous consumption =500 crores and

Ex-ante investment = 4000 crores

18000=500-MPC(18000)+4000

MPC(18000)-18000=4500

MPC=13500/18000

Or

MPC=0.75

MPS=change in savings /change in income=20/100=0.2

Investment multiplier (K)=change in income/change in investment

5=6000/change in investment

Increase in investment by INR 1200 crores is required to attain additional income of 6000 INR

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