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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceIn a simple closed economy with no taxes, the marginal propensity to consume is 0.75. By how much does equilibrium income rise if investment rises by RM10 billion?
The simple spending multiplier is 1 ÷ (1 − MPC) = 1 ÷ 0.25 = 4, so income rises by 4 × 10 = RM40 billion. RM7.5 billion is only the first round of extra consumption (0.75 × 10). RM13.3 billion divides by the MPC instead of by the marginal propensity to save. RM10 billion ignores the induced rounds of spending. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 1 Topic 2 Fundamentals of Economics; N. G. Mankiw, Macroeconomics (as at October 2026).
Dividing by the MPC instead of by (1 − MPC).
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