Q12 of 34 Page 1

Calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous consumption is ₹ 500 crores, ex-ante investments are ₹ 4000crores and equilibrium level of Income of the economy is ₹ 18,000 crores?

Or


Suppose in a hypothetical economy, the savings increase by ₹ 20 crores when national income increases by ₹ 100 crores. Compute the additional investments needed to attain an increase in national income by ₹ 6,000 crores?


At equilibrium level of an economy Y=C+I


Given, autonomous consumption =500 crores and


Ex-ante investment = 4000 crores


18000=500-MPC(18000)+4000


MPC(18000)-18000=4500


MPC=13500/18000


Or


MPC=0.75


MPS=change in savings /change in income=20/100=0.2


Investment multiplier (K)=change in income/change in investment


5=6000/change in investment


Increase in investment by INR 1200 crores is required to attain additional income of 6000 INR


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