Page 2 - lesson note-Income Determination and Multiplier45
P. 2
2. If investment multiplier is 4, what will be the value of MPC?
Answer: -
Given, = 4
1
=> = 4
1−
=> 1 = 4 − 4
=> 4 = 4 − 1
=> 4 = 3
3
=> = = 0.75
4
3. In an economy, the equilibrium level of national income
Rs.15,000crore. The ratio of MPC and MPS is 3:1. Calculate the
additional investment needed to reach a new equilibrium level of
national income of Rs.22,000crore.
Answer: -
Given, : = 3: 1
3
=> = => = 3
1
=> = 3(1 − )
=> = 3 − 3
=> 4 = 3
3
=> = = 0.75
4
1 1 1
= = = = 4
1− 1−0.75 0.25
Given, original equilibrium level of national income is Rs.15,000
New equilibrium level of national income will be Rs,22,000
Change in income (∆Y) = 22,000-15,000=7,000
∆
=
∆
7000
=> 4 =
∆
7000
=> ∆ = =1750
4
An additional investment of Rs.1750 is needed to reach new
equilibrium income level of 22,000 crore.
