Answer to Question #237262 in Macroeconomics for 75%

Question

If 75% of any increase in income is spent on consumption, then an increase in autonomous investment of R1 billion results in an increase in national income of as much as

R5 billion

R1.33 billion

R4 billion

R6 billion

Answer 1

The correct answer is R4 billion as calculated below

If R1 billion represent the remaining 25%

$R1=25\%$

Then, an increase in consumption will be calculated as follows;

$=\frac {R1\times 75\%}{25\%}$

$=R3 Billion$

Hence, an increase in national income will as much as;

$R3+R1=R4 \space Billion$