If National Income in an economy increases by Rs. 1,000 crore as a result of a new investment (ΔI) of Rs 200 crore, find out the values of (i) MPC, and (ii) Multiplier (K).

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Latest Answer: 1 month ago
In: Commerce

If National Income in an economy increases by Rs. 1,000 crore as a result of a new investment (ΔI) of Rs 200 crore, find out the values of (i) MPC, and (ii) Multiplier (K).

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1 Answers

Answered By Nikita Chetry
Answer: 1 month ago

Given: Change in National Income (ΔY\Delta YΔY) = Rs. 1,000 crore Change in Investment (ΔI\Delta IΔI) = Rs. 200 crore Formulas: Multiplier K=ΔYΔIK = \frac{\Delta Y}{\Delta I}K=ΔIΔY...

Given:

Change in National Income ( $\Delta Y$ ) = Rs. 1,000 crore
Change in Investment ( $\Delta I$ ) = Rs. 200 crore

Formulas:

Multiplier $K = \frac{\Delta Y}{\Delta I}$
$K = \frac{1}{1 - \text{MPC}}$

Step 1: Calculate Multiplier (K)

$K = \frac{1000}{200} = 5$

Step 2: Calculate MPC
Using $K = \frac{1}{1 - \text{MPC}}$ :

$5 = \frac{1}{1 - \text{MPC}} \implies 1 - \text{MPC} = \frac{1}{5} = 0.2$ $\text{MPC} = 1 - 0.2 = 0.8$

Answer:

Multiplier (K) = 5
Marginal Propensity to Consume (MPC) = 0.8

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If National Income in an economy increases by Rs. 1,000 crore as a result of a new investment (ΔI) of Rs 200 crore, find out the values of (i) MPC, and (ii) Multiplier (K).

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If National Income in an economy increases by Rs. 1,000 crore as a result of a new investment (ΔI) of Rs 200 crore, find out the values of (i) MPC, and (ii) Multiplier (K).

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