Question

the consumption function of an economy is guven as C = 40+0.8Y. then calculate the total increase in income and consumption if investment expenditures increases by rupees 500 crores
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Answer 1

Answer:

∆Y = 2500 cr

∆C = 200 cr

Explanation:

∆I = 500 cr

C=40+0.8Y

MPC = 0.8

MPS = 0.2

K = 1/MPS

= 1/0.2

=5

K = ∆Y/∆I

5 = ∆Y / 500

∆Y = 2500cr

MPC = ∆C/∆Y

0.8 = ∆C / 2500

∆C = 200cr