In an economy , `60%` of increased income is spent on conumption. If Rs. 4 crores are invested in a Project, find out the increase in income and saving.

Answer

Increase in income = Rs. 10 crores ; Increase in saving = Rs. 4 crores

Explanation

Given : MPC `=0.6`
Multiplier (k) `=(1)/(1-MPC)=(1)/(1-0.6)=2.5`
We also know : k =`("Change in Income"(DeltaY))/("Change in Investment"(Deltal))` Given: Change in Investment `(Deltal)= Rs. 4` crores
i.e.,`2.5 =("Change in Income"(DeltaY))/(4)`
Change or Increase in Income `(DeltaY)=Rs. 10` crores
MPS `=0.60 = 0.40`
MPS `=("Change in Saving"(DeltaS))/("Change in Income"(DeltaY))`
Change in Saving `(DeltaS)= DeltaYxx` MPS`= 10xx0.4 = Rs.4` crores