If the government invest the sum of N1,000,000.00 and the marginal propensity to consume is 0.75, what is the change in income?

If the government invest the sum of N1,000,000.00 and the marginal propensity to consume is 0.75, what is the change in income?

Answer Details

The marginal propensity to consume (MPC) is the fraction of each additional unit of income that is consumed. In this case, the MPC is 0.75, meaning that for every additional N1 of income, 0.75kobo will be spent. So, when the government invests N1,000,000.00, the initial increase in income will be: N1,000,000.00 x 1 = N1,000,000.00 Now, using the MPC, we can calculate the total change in income by multiplying the initial increase by 1/MPC: N1,000,000.00 ÷ (1 - 0.75) = N4,000,000.00 Therefore, the change in income is N4,000,000.00.