Q1 If an additional investment of Rs500cr increases the income of Rs500cr. In the first round of the multiplier process,by Rs450 cr in the second round by 405cr in the third round and so on. Determine the total increase in income.
Q2 Calculate MPC if autonomous consumption is 500cr and ex ante investments are 4000cr and equilibrium level of income is 18000cr.
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Answer:
Total increase in income = Rs 5000 Crore
Explanation:
increase of Rs. 450 crores in the second round and of Rs. 405 crores in the third round indicates that 90% of additional income is spent on consumption, i.e .MPC=0.90.
Multiplier (k) =1/1-MPC= 1/1-0.90 = 1/0.10 =10
We also know: k =Change in Income(ΔY)Change in Investment(Δl)
10=Change in Income(ΔY)500
Change in Income(ΔY) = Rs 5000
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