ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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’. K= 1/ (1-MPC) Income. 100.

Detailed explanation-2: -There is a direct relation between MPC and K. Higher the MPC higher is value of K and vice-versa. K=Y/I =Change in Income / Change in InvestmentThe relationship between the value multiplier andMPC is as follows :K=1/1-MPCThe equation shows that the higher the value of MPC the higher is the value of multiplier.

Detailed explanation-3: -k = 1 / (1 – MPC) This formula shows the relation between the increase in the earning of the nation due to the investments by the respective government or the corporates, if, there is a fixed pattern of expenditure from the additional income.

Detailed explanation-4: -Multiplier (k) = 1/MPS = 1/ 0.5 = 2. Was this answer helpful?