There is an increase in investment of Rs. 100 crore in an economy

CBSE Class 12 CBSE Class 12 Economics
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1

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.

2

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.