The increase in income in an economy is four times more than the incr…

The correct answer is Option (3) → 0.8

Note: The given question is as per NTA. The calculation on the basis of which the NTA has arrived at this solution is given below:

Increase in income is 4 times "more" than the increase in investment. It means if investment increase by 100, the increase in income will be Rs 500 i.e. is 100 + 4 times 100.
That means the investment multiplier (K) = Change in  Income/Change in Investment = 5.

K = 1/ (1- MPC)

5 = 1/ (1- MPC)

1- MPC = 1/5

MPC =1 - 1/5 = 4/5 = 0.80

However, the answer can be 0.75 depending upon the interpretation as explained below:

The phrase “increase in income is four times more than the increase in investment” can be interpreted in standard economics as: ΔY=4×ΔI

Multiplier (k) = ΔY / ΔI

Given: Increase in income is four times the increase in investment
⇒ k = 4

Now,
k = 1 / (1 − MPC)

So,
4 = 1 / (1 − MPC)
⇒ 1 − MPC = 1/4
⇒ MPC = 3/4 = 0.75