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Determination Of Income And Employment

Question

MPC in an economy is 0.8. If investment is increased by र 5 crores, how much would be increase in income?

Solution

straight K space equals space fraction numerator 1 over denominator 1 minus MPC end fraction space equals space fraction numerator 1 over denominator 1 minus 0.8 end fraction space equals space fraction numerator 1 over denominator 0.2 end fraction space equals fraction numerator 1 over denominator begin display style 1 fifth end style end fraction space equals space 5

Increase in income = Change in investment x K = 5 x 5 = 25 crores.