The investment multiplier is equal to which of the following?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Reciprocal of marginal propensity to save.
The investment multiplier (K) measures how much total income changes as a result of a change in investment. It is given by the formula: K = 1 / (1 – MPC) = 1 / MPS
Hence, the investment multiplier is the reciprocal of the marginal propensity to save (MPS).