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Question
Calculate Change in Income (ΔY) for a hypothetical economy. Given that:
- Marginal Propensity to Consume (MPC) = 0.8, and
- Change in Investment (ΔI) = Rs. 1,000 crores
Solution
Given Δ I = Rs. 1,000 crores
MPC = 0.8
As we know,
Multiplier (K) = `1/(1 - "MPC") = 1/(1 - 0.8) = 1/0.2 = 5` times
We know,
`"K" = (triangle"Y")/(triangle"I")`
`5 = (triangle"Y")/1000`
ΔY = Rs. 5,000 crores
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