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Question
Suppose marginal propensity to consume is 0.8. How much increase in investment is required to increase national income by Rs. 2000 crore? Calculate.
Solution
Giventhat
MPC = 0.8
ΔY = Rs 2000 crore
We know that
`K=1/(1-MPC)=1/(1-0.8)=5`
`K=(DeltaY)/(DeltaI)`
`K=2000/(DeltaI)`
ΔI = Rs 400 crore
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