Question

In an economy, 75 per cent of the increase in income is spent on consumption. Investment is
increased by 1,000 crore. Calculate:
(i) Total increase in income.
(ii) Total increase in consumption expenditure.
1.​

Answer 1

Explanation:

MPC=75/100=3/4

K=1/mps

=1/1/4=4

therefore,mps=1-3/4=2/4

(a) ∆y/∆i or 4 =∆y/1000

or ∆y = 4*1000=4000crores

(b) increase in consumption expenditure

i.e., ∆c ,

∆C=∆y-∆i

=4000-300

= 1000 crores

Hope this will help you dear!