If mpc = 0.6, what will be the final change in National Income arising from an initial increase in Investment of £200m?

In this case, mpc is the Marginal Propensity to Consume, which is a value between 0 and 1 representing the proportion spent on consumption of an extra unit of income received by a consumer. It is used formula to obtain the Keynesian multiplier, k = 1/(1 - mpc). This multiplier is used to represent the total increase in output caused by an initial increase in spending in the economy: Total increase = k x initial increase. This total increase will be larger than the initial increase as money flows around the economy; when it is received and spent initally, what is spent will be received by other economic agents as income, which will again be spent by them and received as income to someone else, who will in turn spend it, creating a multiplying effect on the total change in output in the economy. In this question, the multiplier will be 1/(1 - 0.6) which is 2.5, and the initial increase in investment in the economy is £200mn. Using the above logic, the final change in national income will be 2.5 x £200mn = £500mn.