Page 2 - lesson note--Income Determination and Multiplier44b
P. 2
• This process keeps repeating till the total increase in income equals the
product of multiplier and change in investment. ∆ = . ∆
Let an additional investment of 100crore is made in the economy with MPC is
equal to 0.5.
Time ∆ ( ) ∆ ( ) ∆ ( ) ∆ ( )
period ∆ = 0.5 × ∆ ∆ = ∆ − ∆
1 100 100 50 50
2 ↓ 50 25 25
3 ↓ 25 12.5 12.5
4 ↓ 12.5 06.25 06.25
ײ ײ ײ ײ ײ
ײ ײ ײ ײ ײ
ײ ײ ײ ײ ײ
total ײ - 200 100 100
1
=
1 −
1
=˃ =
1−0.5
1
=˃ = =2
0.5
Change in income, ∆ = × ∆
=˃ = 2 × 100
= 200 .
Y
AS
AD and AS = + + ∆
|
= +
E
2
∆
1
∆
X
National income
O
2
1
