Question

in an economy investment increase by 600 if MPC = 0.7 what is the increase in total national income​

Answer 1

Answer:

2000

Explanation:

The increase in income in an economy due to increase in autonomous expenditure is measured by the multiplier. That is if the expenditure such as autonomous consumption, investment or government purchases rises by $1 the income will go up by $m where m denotes the simple expenditure multiplier. It is calculated as

$m=\frac{1}{1-mpc}$

Assuming mpc=0.7, the multiplier is

$m=\frac{1}{1-0.7} =\frac{1}{0.3}$

Therefore, an increase of 600 in investment increases income by

$\Delta Y=m \times \Delta I=\frac{600}{0.3} =2000$