In an economy the actual level of income is र 500 crores whereas the full employment level of income is र 800 crores. The MPC is 0.75. Calculate the increase in investment required to achieve full employment level of income.

Solution

Increase in income required = 800 – 500 = 300 crores.

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 0.75 end fraction space equals space fraction numerator 1 over denominator 0.25 end fraction space equals space 4

Increase in investment required = 300 + 4 = 75 crores.

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