Question

Calculate Change in Income (ΔY) for a hypothetical economy. Given that:

(a) Marginal Propensity to Consume (MPC) = 0.8, and

(b) Change in Investment (ΔI) = ₹1,000 crores

Answer 1

Given ΔI = ₹1,000 crores 

MPC = 0.8 

As we know, 

Multiplier (K) = 1/1-MPC = 1/1-0.8 = 1/0.2 = 5 times 

We know K = ΔY/ΔI 

5 =  ΔY/1000 

ΔY = ₹5,000 crores