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CBSE 2023 Class 12 Economics Delhi Set 1

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Question : 13 of 49
Marks: +1, -0
In an economy, the value of Marginal Propensity to Save (MPS) is 0.250.25, what will be the value of increase in income, if investments increased by ₹200\text{₹} 200 crores?
Solution:  
(d) ₹800 crores
Explanation:
Given: Increase in Investment =ΔI=200=\Delta I=200 crore
  MPS  =0.25\; \text{MPS}\; =0.25
To Find: Increase in Income =ΔY==\Delta Y= ?
Solution:
  Here,  \; \text{Here,}\; MPC+MPS  =1MPC + MPS\;=1
MPC+0.25  =1MPC+0.25\;=1
MPC=1−0.25  =0.75MPC=1-0.25\;=0.75
  Investment Multiplier    \; \text{Investment Multiplier}\;\; =k=  11−MPC=k=\;\frac{1}{1-MPC}
  =  11−0.75=  10.25\;=\;\frac{1}{1-0.75}=\;\frac{1}{0.25}
  =4\;=4
Now, k  =  ΔYΔIk\;=\;\frac{\Delta Y}{\Delta I}
4  =  ΔY2004\;=\;\frac{\Delta Y}{200}
4×200  =ΔY4 \times 200\;= \Delta Y
ΔY  =₹800  crore  \Delta Y\;= \text{₹} 800 \; \text{crore}\;
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