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Question
In an economy, an increase in investment leads to an increase in national income which is three times more than the increase in investment. Calculate marginal propensity to consume.
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Solution
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Since an increase in national income (Y) is three times more than the increase in investment, it means the total increase in (Y) is four times,i.e., Multiplier (K) is 4. K= 1/1- MPC 4 = 1/1-MPC 4 - 4MPC = 1 3 = 4MPC MPC = 0.75
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