Question

Assuming that increase in investment is 900 crore and marhinal propensity to consume is 0.6.Explain the working of the multiplier​

Answer 1

Answer:

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / 900 = 1/ (1- MPC)

                    => Change in income / 900  = 1/0.4

                    => Change in income / 900  = 2.5

                    => change in income  = 2.5 (900)  = 2250 crores.

Explanation:

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