Question

The national income of an economy is rupees 200 crore and the mpc is 50% what is the change in investment which will increase the income by hundred percent

Answer 1

Answer:

50 crore

Explanation:

The increase in income due to increase in expenditure is given by the multiplier. this is give as

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

Assuming mpc=50%=0.5

$m=\frac{1}{1-0.5} =2$

Increasing income by 100% means doubling the initial income. The income will be 200 crores. Therefore,

$\Delta Y=2\times \Delta I\\\therefore 100=2\times \Delta I\\\therefore \Delta I=50$

Then to increase income by 100% the investment must rise by 50 crore