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    Question : An economy, the equilibrium level of income is Rs.12500. The ratio of marginal propensity to consume and marginal propensity to save is 4:1. Calculate the additional investment needed to reach a new equilibrium level of income of Rs.20,000 crore.

    Option 1: 600

    Option 2: 800

    Option 3: 1200

    Option 4: 1000

    Team Careers360 8th Jan, 2024
    Answer
    Answer (1)
    Team Careers360 19th Jan, 2024

    Correct Answer: 1200


    Solution : MPC:MPS=4:1 or 0.80:0.80 (MPC+MPS=1)\\ K=\frac{1}{1-MPC}\\K=\frac{1}{1-0.80}= 5\\ \Delta Y= 20000-12500=7500\\K=\frac{\Delta Income}{\Delta Investment}\\5=\frac{7500}{\Delta Investment}\\\Delta Investment= 1200 \, crore\\ Hence, Option \, C\, is\, correct.

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