Question

An increase of Rs 250 in investment in an economy resulted in total increase in income of Rs 1000. Calculate the following: 

(a) MPC (Marginal propensity to consume) 

(b) ΔS(Change in Saving) 

Answer 1

K = (ΔY)/(ΔI) = 1000/250 = 4 

We know K = 1/(1 - MPC) = 4 

→ K = 1/MPS = 4 

→ MPS = 0.25 

MPS = (ΔS)/(ΔY) = 0.25 

→ ΔS = (0.25)(ΔY) 

= (0.25)(1000) = 250