As a result of increase in investment by Rs. 125 crores, national income increase by Rs. 500 crores Calculate marginal propensity to consume.

Answer

Marginal Propensity to Consume (MPC) `=0.75`

Explanation

Multiplier (k)`=("Change in Income"(DeltaY))/("Change in Investment"(Deltal))=(500)/(125)=4`
We know, Multiplier (k)`=(1)/(1-MPC)`
`4=(1)/(1-MPC)`
`1-MPC=(1)/(4)`
MPC`=1-0.25=0.75`