What will be the change in income when the change in investment is Rs 2,000 crore and MPC is 0.75?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs 8,000 crore
Given:
Change in investment, ΔI = Rs 2,000 crore
MPC, c = 0.75
The investment multiplier is 1 / (1 − c), and ΔY = multiplier × ΔI.
\( \displaystyle k = \frac{1}{1 - 0.75} = \frac{1}{0.25} = 4 \)
\( \Delta Y = 4 \times 2{,}000 = 8{,}000 \)
Income rises by Rs 8,000 crore.
NCERT (2026-27): “4.3.3 The Multiplier Mechanism … The increment in equilibrium value of total output thus exceeds the initial increment in autonomous expenditure. The ratio of the total increment in equilibrium value of final goods output to the initial increment in autonomous expenditure is called the investment multiplier of the economy. Recalling that 10 and 0.8 represent the values of ΔI = ΔA and mpc, respectively, the expression for the multiplier can be explained as”
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