(i) Value of Multiplier (K) |
(ii) Marginal Propensity to Consume (MPC) |
(ii) Change in Consumption Expenditure (AC) |
(iv) Change in Saving (AS) |
Answer:
(i) Calculation of Multiplier Increase in Investment\[(\Delta I)\]= Rs. 250 crore Increase in Income\[(\Delta Y)\]=Rs.1,000 crore \[Value\,of\,multiplier(K)=\frac{Increase\,in\,Income(\Delta Y)}{Increase\,in\,Investment(\Delta I)}\] \[=\frac{1,000}{250}=4\] (ii) Calculation of Marginal Propensity to Consume \[Multiplier(K)=\frac{1}{1-MPC}\] \[4=\frac{1}{1-MPC}\] \[4\,\,(1-MPC)=1\] \[4-4MPC=1\] \[4-1=4MPC\] \[\frac{3}{4}=0.75=MPC\] i.e. Marginal propensity to consume = 0.75 (iii) Calculation of Change in Consumption Expenditure \[M\operatorname{arginal}\,Propensity\,to\,Consume(MPC)=\frac{Change\,in\,Consumption\,\Delta C}{Change\,in\,Income\,\Delta Y};0.75=\frac{\Delta C}{1,000}\] \[\therefore \]Change in consumption expenditure = Rs.750 crore. (iv)Calculation of Change in Savings Marginal Propensity to Save (MPS) \[=1-MPC=1-0.75=0.25~\]Now, \[MPS\,\,\,\,\,=\frac{Change\,in\,Saving\,\Delta S}{Change\,in\,Income\,\Delta Y};0.25=\frac{\Delta S}{1,000}\] \[\therefore \]Change in savings = Rs.250 crore
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