Due to increase in investment by 2000 crore. National Income increases by 8000 crores. Find the value of MPC.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 0.75
k = ΔY / ΔI
where:
MPC = Marginal Propensity to Consume (a value between 0 and 1)
ΔI = Change in Income
Δ/Y = Change in National Income
k = 8000/2000 = 4
k = 1/ (1-MPC)
4= 1/ (1-MPC)
4 (1- MPC) = 1
1- MPC = 0.25
MPC = 1 - 0.25
= 0.75