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if an economy income increases by 10000 as a result of a rise in investment expenditure by 1000 calculate investment multiplier marginal propensity to consume
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Determination of Income and Employment

Introduction:
The determination of income and employment is a crucial aspect of macroeconomics. It involves analyzing the relationship between various macroeconomic variables such as investment expenditure, income, and consumption. The investment multiplier and the marginal propensity to consume are important concepts that help us understand this relationship.

Investment Multiplier:
The investment multiplier measures the change in income resulting from a change in investment expenditure. It represents the multiplier effect of investment on the overall economy. The formula for the investment multiplier is given by:

Multiplier = 1 / (1 - Marginal Propensity to Consume)

Marginal Propensity to Consume:
The marginal propensity to consume (MPC) refers to the proportion of an increase in income that is consumed rather than saved. It represents the relationship between changes in income and changes in consumption. The formula for the MPC is given by:

MPC = Change in Consumption / Change in Income

Calculation:
In this scenario, the economy's income increases by $10,000 as a result of a rise in investment expenditure by $1,000. Let's calculate the investment multiplier and the MPC.

Change in Income (ΔY) = $10,000
Change in Investment Expenditure (ΔI) = $1,000

Using the formula for the investment multiplier, we can calculate the MPC as follows:

Multiplier = 1 / (1 - MPC)
MPC = 1 - 1 / Multiplier

To find the multiplier, we need to know the MPC. Let's assume an MPC of 0.8 (80%). This means that 80% of any increase in income will be consumed.

MPC = 0.8
Multiplier = 1 / (1 - 0.8) = 1 / 0.2 = 5

Therefore, the investment multiplier in this scenario is 5.

Now, let's calculate the MPC using the formula:

MPC = 1 - 1 / Multiplier
MPC = 1 - 1 / 5 = 1 - 0.2 = 0.8

Therefore, the marginal propensity to consume in this scenario is 0.8 (or 80%).

Conclusion:
In conclusion, the investment multiplier measures the change in income resulting from a change in investment expenditure. In this scenario, the income increased by $10,000 due to a rise in investment expenditure by $1,000. The investment multiplier was calculated to be 5, indicating that every dollar increase in investment expenditure led to a $5 increase in income. Additionally, the marginal propensity to consume was calculated to be 0.8 (or 80%), suggesting that 80% of any increase in income will be consumed rather than saved.
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Read the report given below and answer the questions that follow:In an economy the Aggregate Demand is determined by consumption, Government Expenditure and Net Exports in the economy. This is affected by the Savings and Investment in the economy. The Multiplier, that is investment multiplier, which is influenced by the ratio of total consumption and total income, regulates the flow of money in the economy influencing the Aggregate Demand and Supply. Any change in any of the factors leads to a big change in the economy’s equilibrium as a whole. It is to be kept in mind that the economy needs to be in equilibrium condition. When savings is less than the investments the aggregate demand is more than the aggregate supply, and vice versa.What happens when the Investment is lesser than Savings?

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if an economy income increases by 10000 as a result of a rise in investment expenditure by 1000 calculate investment multiplier marginal propensity to consume Related: Long Answer Questions - Determination of Income and Employment, Class 12, Economics
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