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Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these?
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Suppose in a country investment increases by 100 crores and consumptio...
Understanding the Investment Multiplier Effect
Investment in an economy directly impacts income levels through the multiplier effect. In this scenario, an increase of 100 crores in investment will lead to a change in income, which can be calculated using the marginal propensity to consume (MPC).
Given Data
- Investment increase (I) = 100 crores
- Consumption function: c = 10 + 0.6y
- Marginal propensity to consume (MPC) = 0.6
Calculating the Multiplier
The multiplier (k) can be calculated using the formula:
k = 1 / (1 - MPC)
- Substituting the value of MPC:
- k = 1 / (1 - 0.6)
- k = 1 / 0.4
- k = 2.5
Determining the Change in Income
To find the total change in income (ΔY), we use the formula:
ΔY = k * ΔI
- Substituting the investment increase:
- ΔY = 2.5 * 100 crores
- ΔY = 250 crores
Conclusion
The increase in income resulting from a 100 crore increase in investment, given the consumption function, is:
- **250 crores**
Thus, the correct answer is **(a) 250**. This highlights the significant impact that investment can have on overall income levels due to the multiplier effect in an economy.
Investment in an economy directly impacts income levels through the multiplier effect. In this scenario, an increase of 100 crores in investment will lead to a change in income, which can be calculated using the marginal propensity to consume (MPC).
Given Data
- Investment increase (I) = 100 crores
- Consumption function: c = 10 + 0.6y
- Marginal propensity to consume (MPC) = 0.6
Calculating the Multiplier
The multiplier (k) can be calculated using the formula:
k = 1 / (1 - MPC)
- Substituting the value of MPC:
- k = 1 / (1 - 0.6)
- k = 1 / 0.4
- k = 2.5
Determining the Change in Income
To find the total change in income (ΔY), we use the formula:
ΔY = k * ΔI
- Substituting the investment increase:
- ΔY = 2.5 * 100 crores
- ΔY = 250 crores
Conclusion
The increase in income resulting from a 100 crore increase in investment, given the consumption function, is:
- **250 crores**
Thus, the correct answer is **(a) 250**. This highlights the significant impact that investment can have on overall income levels due to the multiplier effect in an economy.
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Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these?
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Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these?.
Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose in a country investment increases by 100 crores and consumption is given by c= 10 +0.6y. how much increase will there take place in income? (a) 250 (b) 200 (c) 150 (d) none of these?.
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