In an economy equilibrium level of income is र 12000 crores. The ratio of MPC to MPS is 3 :1. Calculate the additional investment needed to reach a new equilibrium level of income of र 20,000 crores.

Solution

MPC space equals space 3 over 4 space equals space 0.75 space

increment straight Y space equals space 8000 space left parenthesis equals 20 comma 000 space minus space 12000 right parenthesis

straight K space equals space fraction numerator 1 over denominator 1 minus MPC end fraction space equals fraction numerator 1 over denominator 1 minus 0.75 end fraction space equals space fraction numerator 1 over denominator 0.25 end fraction space equals space fraction numerator 1 over denominator 1 divided by 4 end fraction space equals space 4 straight K space equals fraction numerator increment straight Y over denominator increment straight I end fraction space space or space 4 space equals space fraction numerator 8000 over denominator increment straight I end fraction space or space space space increment straight I space equals space 8000 over 4 space equals space 2000 space crores.

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