In an economy, the level of income is Rs. 1,000 crores and the MPC is

1.	In an economy, the level of income is Rs. 1,000 crores and the MPC is 0.8. If the investment increases by 200 crores. Calculate the total increase in income.
Answer» Multiflier effect K = \(\frac{1}{1-MPC}=\frac{1}{1-80}\) = \(\frac{1}{0.20}\) = 5 Total increase in income is K x 200 Crores That is 5 x 200 Crores = 1,000 Crores Total increase in income = 1,000 Crores

In an economy, the level of income is Rs. 1,000 crores and the MPC is 0.8. If the investment increases by 200 crores. Calculate the total increase in income.

Answer»

Multiflier effect K = \(\frac{1}{1-MPC}=\frac{1}{1-80}\)

= \(\frac{1}{0.20}\) = 5

Total increase in income is K x 200 Crores

That is 5 x 200 Crores = 1,000 Crores

Total increase in income = 1,000 Crores