Q18 of 36 Page 1

If in an economy :

Change in initial Investments (ΔI) = ₹ 500 crores


Marginal Propensity to Save (MPS) = 0.2


Find the values of the following :


(a) Investment multiplier (k)


(b) Change in final income (ΔY)


(a) Investment multiplier (k)

Investment multiplier = 1/MPS


Investment multiplier = 1/0.2


Investment multiplier = 5


(b) Change in final income (ΔY)


Change in final income = Investment multiplier * Change in initial Investments


Change in final income = 5*500


Change in final income = 2500.


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