In an economy an increase in investment leads to an increase in national income three times more than the increase in investment. Calculate MPC.

Solution

Since increase in national income (Y) is three times more than increase in investment, it means total increase in (Y) is four times, i.e., Multiplier (K) is 4.

straight K space equals space fraction numerator 1 over denominator 1 minus MPC end fraction 4 space equals space fraction numerator 1 over denominator 1 minus MPC end fraction space space or space 4 space minus space 4 space MPC space equals space 1 space or space 4 space MPC space equals space 4 space minus space 1 space equals 3

MPC space equals space 3 divided by 4 space equals space 0.75

Some More Questions From Determination of Income and Employment Chapter

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Determination Of Income And Employment

In an economy an increase in investment leads to an increase in national income three times more than the increase in investment. Calculate MPC.

Some More Questions From Determination of Income and Employment Chapter

State relationship between income and consumption.

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How does MPC affect level of income?

Distinguish between APC and MPC, The value of which of APC and MPC can be greater than one and when?

State relationship between income and saving.

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