I recently encountered upon this question:
Suppose, in an economy,autonomous consumption is Rs 100 crore and autonomous investment is Rs 60 crore. Imagine that in this economy,with every increase in income 80 °/° of it is spent on consumption . If the full employment level of income is Rs 1000 crore,what will be the additional investment?
So, the MPC is 0.8 and so the multiplier would be 5 times. The consumption function is C = Autonomous consumption + MPC.y Hence, C = 100 + (0.8)1000 = 900 crore. But then given that the multiplier is the ratio change in income to change in investment, how to proceed further?