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Question
If in an economy :
Change in initial Investments (∆I) = ₹ 500 crores
Marginal Propensity to Save (MPS) = 0.2
Solution
(a) We, Know,
`"k" = (1)/"MPS" =(1)/(0.2) = 5`
So, investment multiplier is 5.
(b) We also Know,
`"k" = (Δ"Y")/(Δ"I")`
5 = `(Δ"Y")/(500)`
ΔY = 2,500.
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