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Question : In an economy, marginal propensity to consume is 0.80. If investment expenditure is increased by Rs.400 crore, calculate the total increase in income.

Option 1: 1000

Option 2: 2000

Option 3: 1400

Option 4: 1600


Team Careers360 10th Jan, 2024
Answer (1)
Team Careers360 19th Jan, 2024

Correct Answer: 2000


Solution : MPC=0.80\\K=\frac{1}{1-MPC}\\ K=\frac{1}{1-0.80}=5\\ K=\frac{\Delta Income}{\Delta Investment}\\ 5=\frac{\Delta Income}{400}\\ \Delta Y= 2000 \, crore\\ Hence, Option \, B\, is\, correct.

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