Question

in a economy 75 % of the increase in income is spent on consumption. investment is increase by 10000 crore calculate (a) total increase in income , (b) total increase in consumption expenditure

Answer 1

Answer:

total increase in income=₹40000

total increase in consumption expenditure=₹30000

Explanation:

MPC=0.75

MPS=0.25(1-MPC)

K=1/MPS=1/0.25=4

Now ,K=Change in income/change in investment

4=change in income/10000

Increase in income=₹40000

Increase in consumption expenditure=0.75*40000=₹30000

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Answer 2

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★ Question:-

→ In an economy, 75% of the increase in income is spent on consumption. Investment is increased by ₹10,000 crore. Calculate:

i) Total increase in income

ii) Total increase in consumption expenditure

★ Answer:-

→ i) Total increase in income = ₹40,000 cr

ii) Total increase in consumption expenditure = ₹30,000 cr

★ Explanation:-

→ In the economy, 75% of the increase in income is spent on consumption, i.e.,

MPC = 75% = 0.75

Also,

Increase in Investment, ΔI = ₹10,000 crore

⇒k = 1/(1-MPC) = 1(1-0.75) = 1/0.25 = 4

⇒k = ΔY/ΔI

⇒4 = ΔY/10,000

⇒ΔY = ₹40,000

Now,

MPC = ΔC/ΔY

⇒0.75 = ΔC/40,000

⇒ΔC = 0.75 × 40,000

⇒ΔC = ₹30,000

∴ The total increase in income is ₹40,000 crore and the total increase in consumption expenditure is ₹30,000 crore.

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