CBSE 2023 Class 12 Economics Outside Delhi Set 2

Question : 3 of 9

Marks: +1, -0

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

80 \%

90 \%

and change in investment to be

₹ 1000

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

Solution:

Given:
Increase in Investment

=∆ {\I}=⟨ 1,000

crore

\;\;\text " MPC "\;=80 \%=0.30 \;\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 "\;

Now,

k=\;{∆ Y}/{∆ I}

10\;=\;{∆ Y}/{1,000}

10 × 1,000\;=∆ Y

∆ Y\;=10,000 \;\text " crore "\;

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