In an economy, the marginal propensity to consume is 0.8. If investment increases by Rs. 1,000 crores, calculate the total increase in income.

Answer

Total increase income =Rs. 5,000 crores

Explanation

Multiplier (k) `=(1)/(1-MPC))=1/(1-0.80)=1/(0.20)=5`
We also know K: `= ("Change in Income"(DeltaY))/("Change in Investment"(Deltal))`
Given : Change in Investment `(Deltal)` `=Rs. 1,000 crores`
i.e.,5`=("Change in Income"(DeltaY))/1000`
so , Change in Income `(DeltaY)` = Rs. 5,000 crores