Based on the following diagram answer the question :

Given initial investment is ₹ 200 crores and MPC = 0.8. If autonomous investment increased by ₹50 crores, the income will increase by ₹  _______ crores.

250

The correct answer is option (3) : 250

Given :

Initial investment (I) = ₹200 crores

MPC = 0.8 (Marginal Propensity to Consume)

Increase in autonomous investment = ₹50 crores

The multiplier (k) can be calculated using the formula :

$k =\frac{1}{1-mpc}$

$k=\frac{1}{1-08}=5$

Change in volume = k* change in investment

Change in income = 5* 50

                           = ₹ 250 crores