CBSE 2023 Class 12 Economics Outside Delhi Set 1

Question : 19 of 52

Marks: +1, -0

For a hypothetical economy, assuming there is an increase in the Marginal Propensity to Consume (MPC) from

75 \%

90 \%

and change in investment to be

₹ 1,000

crore.
Using the concept of investment multiplier, calculate the increase in income due to change in Marginal Propensity to Consume (MPC).

Solution:

Given:
Increase in Investment

=∆ {\I}=1000

crore

\;\;\text " MPC "\;=75 \%=0.75 \;\text " (Before) "\;

\;\;\text " MPC "\;=90 \%=0.90 \;\text " (After) "\;

Increase in Income

=∆ {\Y}=

\;\;\text " Investment Multiplier "\;=k=\;{1}/{1- {\MPC}}

\;=\;{1}/{1-0.90}=\;{1}/{0.10}

\;=10 \;\text " times "\;

\;\;\text " Now, "\; k\;=\;{∆ {\Y}}/{∆ {\I}}

10\;=\;{∆ {\Y}}/{1000}

10 × 1,000\;=∆ {\Y}

∆ {\Y}\;=10,000 \;\text " crore "\;

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