Question

Calculate multiplier when mps 4/5 and 1/2. From the calculations establish the relation between size of multiplier and size of mpc.

Answer 1

Answer:

Hy mate here is your answer

Multiplier = 1/(1 - MPC) When MPC = 4/5; K = 1/(1 - 0.6) = 1/02 = 5 When MPC = 1/2 K = 1/(1 - 0.5) = 1/0.5 = 2 Observing the same we may conclude that there exist positive or direct relation between MPC and Investment Multiplier.  Investment Multiplier coefficient measures the change in final income with respect to given change in the initial investment in the economy. It carries direct relation with rate of growth in an economy, i.e. higher the MPC more chance of growth exists in an economy. But, it is a two sided sword hence if investment falls in an economy the income may Read more on Sarthaks.com - https://www.sarthaks.com/297606/calculate-multiplier-when-from-calculations-establish-relation-between-multiplier-size

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