Question

In an economy the MPC is 0.75. Investment expenditure in the economy increased by Rs 75 crores. Calculate total increase in national income.(Hint: Find k).

Answer 1

answer :

MPC = 0.75

investment expenditure (ΔI)= Rs 75 crores

to calculate ,national income (ΔY)

    ΔI =ΔS =Rs75 crore

MPS+MPC=1

MPS= 1-MPC

MPS=1-0.75

MPS=0.25

          MPS=ΔS/ΔY

            0.25=75 /ΔY

             ΔY =75/0.25

             Δ Y = 75/25×100

             Δ Y= 75 × 4

             Δ Y = Rs 300 crores

∴ hence, national income(ΔY) is Rs300 crore