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Suppose in a hypothetical economy, the savings increase by ₹ 20 crores when national income increases by ₹ 100 crores. Compute the additional investme

Monjur Alahi

Suppose in a hypothetical economy, the savings increase by ₹ 20 crores when national income increases by ₹ 100 crores. Compute the additional investments needed to attain an increase in national income by ₹ 6,000 crores?


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Salim Ahmed Kawsar

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`MPS = "("("Change in Savings")/("Change in Income")")" = "("(DeltaS)/(DeltaY)")" = (20)/(100) = 0.20`
Investment Multiplier (K) = `(1)/(MPS) = (1)/(0.20) = 5`
Investment Multiplier (K) = `(1)/(MPS) = (1)/(0.20) = 5`
Investment Multiplier (K) = `("Change in Income")/("Change in Investment") = "("(Deltay)/(DeltaI)")"`
`5 = ("₹"6000)/("Change in Investment"(Deltal))`
Change in Investment `(Deltal)` = ₹ 1200 crores
Increase in investment by ₹ 1200 crores is required to attain additional income of ₹ 6000 crores .

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