Question

In an economy investment increases by ₹200 crores .as a result the total income increased by ₹1000crores . calculate the MPC

Answer 1

Answer:

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income. It is the ratio between the change in income and corresponding change in consumption.

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

                    => 1000/200 = 1/(1- MPC)

                    => 10 - 10 MPC = 2

                    => 10 MPC = 8

                    => MPC = 0.8.

Explanation: