Answer :

Investment multiplier (K) = Change in Income/Change in Investment

Or


K = 1/ 1- MPC


So, if MPC = 0 9.,


K = 1/ 1- 0.9 = 1/0.1 = 10


Now, if the investment increases by Rs. 1000 crores, then increase in income can be computed by substituting the values in the following formula


Investment multiplier (K) = Change in Income/Change in Investment


10 = Change in Income /1000


Change in Income = Rs. 10000 crores


So, if investment increases by Rs. 1000 crores and MPC = 0.9, then income will increase by Rs. 10000 crores.


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