CBSE Class 12-commerce Answered

Change in investment causes change in income which leads to a change in consumption. A person’s consumption expenditure is an income of the other. Therefore, change in consumption leads to a change in income. This process continues until there is zero change in consumption. Marginal propensity to consume is the core factor of income generation. When higher the MPC, greater is the conversion of income into consumption expenditure. Expenditure is an injection to income generation and saving is a leakage in this process.