In a closed economy without government or foreign trade, if the marginal propensity to consume (MPC) is 0.75, what is the impact on total output when planned investment falls by Rs 20 million?

Explanation

Given an MPC of 0.75, the spending multiplier is 1 / (1 - 0.75) = 4. Therefore, a Rs 20 million reduction in planned investment leads to a total output decline of Rs 20 million × 4 = Rs 80 million.