question_answer

As a result of increase in mvestment by Rs. 60 crore, national income rises by Rs. 240 crore. Calculate marginal propensity to consume.

Answer:

\[\Delta I\] = 60

\[\Delta Y\] = 240

To Calculate: MPC

We know,

Multiplier, K =\[\frac{\Delta Y}{\Delta I}=\frac{240}{60}=4\]

Also we know,

\[K=\frac{1}{1-MPC}\]

Or,        \[4=\frac{1}{1-MPC}\]

Or,        \[4(1-MPC)=1\]

Or,        MPC = 0.75