There is an increase in investment of Rs. 100 crore in an economy. Marginal Propensity to Consume is 1. What can you say about total increase in the income? Calculate.
There is an increase in investment of Rs. 100 crore in an economy
Here , ∆I = Rs.100 crore, MPC = 1
Now, K = 1 / 1 - MPC
or K = 1 /1-1 = $\infty $
Again, we know that, K = ∆Y / ∆I
or $\infty $ = ∆Y/100
or ∆Y = 100 X $\infty $
∆Y = $\infty $
There will be infinite increase in the income, if MPC = 1.