For a hypothetical economy, assume the government increased an infrastructural investment by ₹ $\displaystyle 30,000$ crore. $\displaystyle 80$% of additional income is consumed in the economy. Estimate the increase in income and the corresponding increase in consumption expenditure in the economy.

Given, $\displaystyle \Delta I$ = ₹ $\displaystyle 30,000$ croreMarginal Propensity to Consume (MPC) = $\displaystyle 80$% of additional income consumed i.e. $\displaystyle 0.8$As we know, K = \frac{1}{1 - MPC} = \frac{1}{1 - 0.8} = 5 Increase in Income ($\displaystyle \Delta Y$) = K × $\displaystyle \Delta I$= $\displaystyle 5$ × $\displaystyle 30,000$= ₹ $\displaystyle 1,50,000$ crore MPC = \frac{\Delta C}{\Delta Y} 0.8 = \frac{\Delta C}{1{,}50{,}000} $\displaystyle \Delta C$ = ₹ $\displaystyle 1,20,000$ crore