When MPS = 0.40, increase in investment

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Home Questions 6BGHU6TS46

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

When MPS = 0.40, increase in investment = ₹ 500 crores, then increase in income will be ?

Options:

₹ 1200

₹ 1210

₹ 1250

₹ 1300

Correct Answer:

₹ 1250

Explanation:

The correct answer is Option 3: ₹ 1250

Multiplier = \(\frac{1 }{\text 1- MPC }\)

= \(\frac{ 1}{MPS }\)

= \(\frac{1 }{0.4 }\)

= 2.5
Multiplier = \(\frac{ΔY }{ΔI }\)

2.5 = \(\frac{ΔY }{ 500}\)

∆Y = 2.5 * 500

∆Y = 1250