In an economy marginal propensity to consume is 0.75. Investment expenditure in the economy increases by र 75 crore. Calculate total increase in national income.

Solution

We know that $straight K space equals space fraction numerator increment straight y over denominator increment straight I end fraction space space or space space increment straight y space equals space increment straight I space cross times space straight K$
Increase or change in national income i.e.,
$increment straight y space equals space increment straight I space cross times space fraction numerator 1 over denominator 1 minus MPC end fraction space space space space space space equals space 75 space cross times space fraction numerator 1 over denominator 1 minus 0.75 end fraction space equals space 75 space cross times space fraction numerator 1 over denominator 0.25 end fraction space space space space space space equals space 75 space cross times space 4 space equals space space 300 space crore.$
Note: ‘Determination of income and employment: two-sector model' is deleted from syllabus from academic session 2009-2010 and in its place ‘Short run equilibrium output' has been added.

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Determination Of Income And Employment

In an economy marginal propensity to consume is 0.75. Investment expenditure in the economy increases by र 75 crore. Calculate total increase in national income.

Some More Questions From Determination of Income and Employment Chapter

Calculate consumption level for Y = र 1000 crores if consumption function is C = 300 + 0.5Y.

State relationship between income and consumption.

What is Breakeven point?

What are the types of Propensity to consume?

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