In an economy investment expenditure is increased by र 400 crores and MPC is 0.8. Calculate total increase in income and savings.

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 fraction numerator 1 over denominator 1 divided by 5 end fraction space equals space 5

Total increase in income = 400 x 5 = 2,000 crores.
Total increase in saving = 0.2 (= 1 – 0.8) of 2,000 (increased income) = 400 crores.

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