The aggregate income increases from 40 lakh to 200 lakh :The Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) are two important concepts in economics that represent the fraction of additional income that individuals or households consume and save, respectively.
Given the information provided, we can use the following formula to calculate the MPC and MPS:
MPC = Change in Consumption / Change in Income MPS = Change in Savings / Change in Income
In this case, the increase in investment of 16 lakh has led to an increase in aggregate income from 40 lakh to 200 lakh.
Change in Income = 200 lakh – 40 lakh = 160 lakh Change in Investment = 16 lakh (as stated in the question)
Now, we need to calculate the change in consumption and change in savings.
Change in Consumption = Change in Income – Change in Investment Change in Savings = Change in Investment
Substitute the values into the formulas:
Change in Consumption = 160 lakh – 16 lakh = 144 lakh Change in Savings = 16 lakh
Now we can calculate the MPC and MPS:
MPC = Change in Consumption / Change in Income MPC = 144 lakh / 160 lakh MPC = 0.9
MPS = Change in Savings / Change in Income MPS = 16 lakh / 160 lakh MPS = 0.1
So, the values of the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) are 0.9 and 0.1, respectively. This means that out of the increase in income, 90% is consumed (MPC) and 10% is saved (MPS).The aggregate income increases from 40 lakh to 200 lakh