question_answer

In an economy investment is increased by Rs. 300 crore. I marginal propensity to consume is 2/3, calculate increase in national income.

Answer:

\[MPC=2/3\]

\[\Delta I=\] Rs. 300 crores

\[k=[1\div (1MPC)]\]

\[=[1\,\div \,(12/3)]\]

\[\frac{1}{1-\,MPC}=\,\frac{1}{1-\frac{2}{3}}\]

\[\frac{1}{\frac{1}{3}}=3\]

\[k=\Delta Y/\Delta I\]

\[3=\,\Delta Y/300\]

\[\Delta Y=300\times 3\]

= Rs. 900 crore

Increases in national income is Rs. 900 crore.