When MPS = 0.40, increase in investment = ₹ 500 crores, then increase in income will be ?
Answer & explanation
Correct answer: option 3
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