Question

6. What determines the size of the investment multiplier?
(a) Marginal Propensity to Save (MPS)
(b) Marginal Propensity to Income (MPC)
O O O O
(c) Change in Aggregate Income
(d) Change in Investment​

Answer 1

In this question, we are asked to tell what determines the size of the investment multiplier.

• Options A and B are correct i.e., Marginal Propensity to Save (MPS) and Marginal Propensity to Consume (MPC).
• The marginal propensity to save (MPS) and the marginal propensity to consume (MPC) determine the size of the investment multiplier (MPS).
• An investment's potential to stimulate the economy more strongly is indicated by a higher investment multiplier.
• Investment multiplier is a term used to describe how much more money the government invests in new initiatives, increasing the economy's overall income.
• The amount of the investment multiplier depends on the choices made by households in an economy on their propensity to spend (marginal propensity to consume) or save (known as the marginal propensity to save).

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