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Determination Of Income And Employment

Question

If in an economy MPC is 0.8 and investment increases by र 1,000 crores, calculate total 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 space 5

Total increase in income = Increase in investment x K (multiplier)
= 1,000 x 5 = 5,000 crores