A change in investment in an economy by ₹2,000 crores leads to an increase in its national income by ₹8,000 crores. What will be the change in consumption ?
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : ₹6,000 crores
1. Calculate the Multiplier:
Multiplier = Change in National Income / Change in Investment
Multiplier = ₹8,000 crores / ₹2,000 crores = 4
2.Multiplier=ΔI/ΔY
1/ (1-MPC) = 4
On further simplification,
MPC= 3/4
The formula to find the change in consumption (ΔC) is:
ΔC=MPC×ΔY
= 3/4 *8000
= 6,000 cr