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Question
Calculate the change in final income, if Marginal Propensity to Consume (MPC) is 0.8 and change in initial investment is ₹ 1,000 crores.
Solution
The marginal propensity to consume = 0.8
The change in the initial investment = Rs 1000
Multiplier K = `1/(1-MPC)`
= `1/(1-0.8)`
= 5
Multiplier K = `"change in income"/"change in investment"`
`5 = "change in income"/1000`
Change in income = 1000 x 5 = Rs 5000.
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