If MPC 0 5 and initial investment is 100 Rs crores the income generation in the economy will be ........

If MPC = 0.5 and initial investment is 100 Rs crores, the income generation in the economy will be :

5 crores Rs

100 crores Rs

200 crores Rs

500 crores Rs

- The Marginal Propensity to Consume (MPC) is 0.5, meaning that for every unit of income earned, 50% is spent on consumption.

- The formula for the multiplier effect in an economy is 1/(1-MPC).

- With an MPC of 0.5, the multiplier is 1/(1-0.5) = 2.

- An initial investment of 100 Rs crores will lead to total income generation of 100 Rs crores * 2 = 200 Rs crores.

- Option 1, 5 crores Rs, is incorrect as it does not apply the multiplier.

- Option 2, 100 crores Rs, is incorrect because it ignores the multiplying effect.

- Option 3, 200 crores Rs, is the correct choice.

- Option 4, 500 crores Rs, would require a higher MPC for accuracy.

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