Question

features of investment multiplier in economicsss ​

Answer 1

Answer:

The investment multiplier refers to the stimulative effects of public or privateinvestments. It is rooted in theeconomic theories of John Maynard Keynes. The extent of the investment multiplier depends on two factors: the marginal propensity to consume (MPC) and the marginal propensity to save (MPS).

Answer 2

Answer:

Change in Equilibrium National Income: (Static) Investment Multiplier:

The time has come to pose a question of direct importance to the policymakers since aggregate demand is inadequate to put the economy on to the path of full employment. Fig. 10.11 or 10.12 tells us that the economy remains below the state of full employment— the situation of underemployment equilibrium.

So, what is needed is the stimulation of aggregate demand so that new aggregate demand equals aggregate supply or output.

Equilibrium Income: Income-Expenditure Approach

Equilibrium Income: Saving-Investment Approach

So the question is: What happens to the level of income if equilibrium is disturbed by a change in different elements of injections (i.e., private investment expenditure, government expenditure, or tax schedule)? To ascertain the impact on equilibrium income following a change in injection is called the multiplier.

The multiplier concept is central to Keynes’ theory because it tells us that an increase in investment by a certain amount leads to an increase in income greater than the increase in investment. Thus, an investment has “multiplier effect” on aggregate demand. The concept of multiplier is a solution to the problem of underemploy­ment equilibrium.

While developing his theory of “invest­ment multiplier”, Keynes borrowed the concept from R. F. Khan’s “employment multiplier.” A change in autonomous investment expenditure brings about a change in income. However, the change in income is greater than—or a multiple of— the change in investment.

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