What will be the change in final income, when MPC = 0.6 and change in initial investment is Rs. 2,000 crore?

5,000

Investment multiplier refers to the increase in the aggregate income of the economy as a result of an increase in the investments done by the government.  The ratio of ΔY to ΔI is called the investment multiplier.

K = \(\frac{ΔY}{ΔI}\)

K = \(\frac{1}{\text{1-MPC}}\)

K = \(\frac{1}{1-0.6}\)

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

K = 2.5

Now, we know that K = 2.5 and change in initial investment is Rs. 2,000 crore

So,

K = \(\frac{ΔY}{ΔI}\)

2.5 = \(\frac{ΔY}{2,000}\)

ΔY = 5,000