Question

Complete the following table :

Situation	Change in Investment (ΔI)	Change in Income (ΔY)	Marginal Propensity to Consume (MPC)	Investments Multiplier (K)
(a)	200	(i) __________	0.8	(ii) __________
(b)	(iii) __________	2000	(iv) __________	4
(c)	1000	(v) __________	0.5	(vi) __________

Hint:

Use K = 1/(1 - MPC) and K = change in income / change in investment. Row (a): K = 5, change in income = 1000. Row (b): 500 and 0.75. Row (c): K = 2, change in income = 2000.

Answer 1

Step 1: Understanding the Concept:
The investment multiplier is \(K = \dfrac{\Delta Y}{\Delta I} = \dfrac{1}{1 - MPC}\).
Here \(\Delta Y\) is the change in income and \(\Delta I\) is the change in investment. We use these two formulas to fill each blank.

Step 2: Situation (a): find (i) and (ii):
Given \(\Delta I = 200\) and \(MPC = 0.8\).
\[ K = \frac{1}{1 - 0.8} = \frac{1}{0.2} = 5 \]
\[ \Delta Y = K \times \Delta I = 5 \times 200 = 1000 \]
So (i) is 1000 and (ii) is 5.

Step 3: Situation (b): find (iii) and (iv):
Given \(\Delta Y = 2000\) and \(K = 4\).
\[ \Delta I = \frac{\Delta Y}{K} = \frac{2000}{4} = 500 \]
\[ K = \frac{1}{1 - MPC} \Rightarrow 4 = \frac{1}{1 - MPC} \Rightarrow 1 - MPC = 0.25 \Rightarrow MPC = 0.75 \]
So (iii) is 500 and (iv) is 0.75.

Step 4: Situation (c): find (v) and (vi):
Given \(\Delta I = 1000\) and \(MPC = 0.5\).
\[ K = \frac{1}{1 - 0.5} = \frac{1}{0.5} = 2 \]
\[ \Delta Y = K \times \Delta I = 2 \times 1000 = 2000 \]
So (v) is 2000 and (vi) is 2.

Step 5: Write the completed table:

Situation	Change in Investment (\(\Delta I\))	Change in Income (\(\Delta Y\))	MPC	Investment Multiplier (K)
(a)	200	1000	0.8	5
(b)	500	2000	0.75	4
(c)	1000	2000	0.5	2

Final Answer:
The blanks are (i) 1000, (ii) 5, (iii) 500, (iv) 0.75, (v) 2000 and (vi) 2. \[ \boxed{\text{(i) 1000, (ii) 5, (iii) 500, (iv) 0.75, (v) 2000, (vi) 2}} \]