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Question
In an economy 75 percent of the increase in income is spent on consumption. Investment increased by ₹ 1,000 crore.
Calculate the total increase in income on the basis of given information.
Solution
MPC = 75% = 0.75
ΔI = 1,000
ΔY = ?
K = `1/(1 - "MPC")`
= `1/(1-0.75)`
= `1/0.25`
= 4
K = `"ΔY"/"ΔI"`
4 = `"ΔY"/1000`
`4 xx 1000` = ΔY
₹ 4,000 = ΔY
Thus, the increase in income = ₹ 4,000 crores.
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