The aggregate demand curve of an economy is parallel to X axis. What will be the value of investment multiplier in this economy?

one

The correct answer is Option (1) → one

An aggregate demand (AD) curve parallel to the X-axis (representing output/income) implies that aggregate demand is constant and independent of income levels, meaning the Marginal Propensity to Consume (MPC) is 0, or alternatively, that the Marginal Propensity to Save (MPS) is one. In this theoretical scenario, the investment multiplier would be 1, because any change in investment would not lead to any subsequent changes in consumption or income, as there is no consumption of additional income (MPC=0).

The AE curve is the aggregate demand in this context. Its equation is $\text{AE}=A+\text{MPC}\cdot Y$, where $A$ is autonomous expenditure (including investment). The slope of the $\text{AE}$ curve is the Marginal Propensity to Consume ($\text{MPC}$). If the $\text{AD}$ (or $\text{AE}$) curve is parallel to the X-axis (the income/output axis, $Y$), it means the slope is zero.

K=1/ (1−MPC)

K =1 (1-0)= 1​