Question

 If the marginal propensity to consume is 0.75, how much consumption expenditure will change when income increases by 2000 crores. ​

Answer 1

ANSWER

If investment increases by Rs. 75 crores and MPC= 0.75, then

Multiplier(k) => Change in income / 75 = 1/ (1-MPC)

=> Change in income / 75 = 1/0.25

=> Change in income / 75 = 4

=> change in income = 4(75) = 300 crores

Hence, National income increases by 300 crores.