Answer to Question #242271 in Macroeconomics for Olu

Question

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

I.R4 billion
ii.R1.33 billion
iii.R6 billion
iv R5 billion

Answer 1

TR4 billion is the correct answer 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;

$R3+R1=R4 \space Billion$