A hypothetical economy tends to save only 25% of its additional income. How much additional income would be generated by it if the investment is increased by 50 crores?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 200 crores
Marginal Propensity to Save (MPS) = 25% = 0.25
Increase in Investment (ΔI) = ₹50 crores
k = 1/ MPS
= 1 / 0.25 = 4
ΔY= K × ΔI = 4×50 =200 crores