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Question
In an economy an increase in investment by Rs 100 crore led to ‘increase’ in national by Rs 1000 crore. Find marginal propensity to consume.
Solution
Given that
Change in investment (ΔI)=Rs 100crore
Change in income(ΔY) = Rs 1,000crore
We know that
`1/(1-MPC) " where MPC is equal to marginal propensity to consume"`
`1/(1-MPC)=1000/100=10`
1=10-10MPC
10MPC=9
MPC=0.9
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