"In an economy, an increase in investment leads to doubling of the national income." Calculate the Marginal Propensity to Consume (MPC) for the given economy.

Question

Accepted Answer

Given: An increase in investment leads to doubling of national income. This means the multiplier (k) = 2.

Multiplier formula: k = 1/(1-MPC)
2 = 1/(1-MPC)
1-MPC = 1/2
1-MPC = 0.5
MPC = 1 - 0.5
MPC = 0.5

The Marginal Propensity to Consume (MPC) for this economy is 0.5.

Verification:
With MPC = 0.5, k = 1/(1-0.5) = 1/0.5 = 2
If investment increases by ₹X, income increases by 2X, confirming that income doubles.