In an economy investment expenditure increased by 400 crore and marginal propensity to consume is 0.8.
What will be the increase in income?
Answer & explanation
Correct answer: option 4
Change in income = k (multiplier ) * Change in investment expenditure K= \(\frac{ 1}{\text 1 - MPC }\)
k= \(\frac{1 }{1 - 0.8 }\)= 5
Change in Income = 5 * 400 = 2000