In an economy every time the income rises 20 percent of it is saved. Now suppose in the same economy investment rises by ₹ 200 crore. Calculate the following:
- Change in income.
- Change in consumption.
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Given MPS = 0.2(as 20% of increase in income is saved),$\Delta\text{I}=200$ (Given)
$\Delta\text{Y}=1000\ \text{crore}.$
$\text{MPC}=\frac{\Delta\text{C}}{\Delta\text{Y}}\ \text{or}\ 0.8=\frac{\Delta\text{C}}{1000}$
$\Delta=800\ \text{crore}.$
- $\text{K}=\frac{1}{\text{MPS}}=\frac{1}{0.2}=5$
$\Delta\text{Y}=1000\ \text{crore}.$
- $\text{MPC}=1-0.2=0.8$
$\text{MPC}=\frac{\Delta\text{C}}{\Delta\text{Y}}\ \text{or}\ 0.8=\frac{\Delta\text{C}}{1000}$
$\Delta=800\ \text{crore}.$
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