In an economy , income increases by 10,000 as a result of a rise in investment expenditure by 1,000. Calculate: (a) Investment Multiplier, (b) Marginal Propensity to Consume.

Answer

(a) Investment Multiplier =10; (b) Marginal Propensity to Consume (MPC) =0.9

Explanation

(a) Investment Multiplier (k) `("Change in income"(DeltaY))/("Change in Investment"(Deltal))=(10,000)/(1,000)=10`
(b) We know, k`=(1)/(1-MPC)`
`10=(1)/(1-MPC)`
MPC`=1-0.10=0.9`