In an economy, the value of Marginal Propensity to Save (MPS) is 0.25, what will be the value of increase in income, if investments increased by ₹ 200 crores?

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KollegeApply · Accepted Answer

₹ 800 crores Explanation: Given: Increase in Investment = ΔI = 200 crore MPS = 0.25 To Find: Increase in Income = ΔY =? Here, MPC + MPS = 1 MPC + 0.25 = 1 MPC = 1 - 0.25 = 0.75 Investment Multiplier = k = 1/(1 - "MPC") =1/(1 - 0.75) = 1/ (0.25) = 4 Now, k = "ΔY"/"ΔI" 4 = "ΔY"/200 4xx200 = ΔY ΔY = ₹ 800 crore

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