In an economy, an increase in investment leads to increase in national income which is three times more than the increase in investment. Calculate marginal propensity to consume.
CBSE OUTSIDE DELHI - SET 1 2008
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Since increase in Y is 3 times more than increase in I, total increase in Y is 4 times. Therefore, the value of multiplier is 4.$\text{Multiplier} = \frac{1}{\text{1 - MPC}}$
$4 = \frac{1}{\text{1 - MPC}}$
$4 - 4 \text{ MPC} = 1$
$4 \text{ MPC} = 3$
$\text{MPC} = 0.75.$
$4 = \frac{1}{\text{1 - MPC}}$
$4 - 4 \text{ MPC} = 1$
$4 \text{ MPC} = 3$
$\text{MPC} = 0.75.$
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