The correct answer is Option 4: 1, 2 and 3.
Here's why:
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Multiplier works in both the forward and backward direction: This is true. Investment multiplier is the ratio of change in income to the initial change in investment expenditure. It works in both the direction i.e. forward and backwards. If with an increase in the investment, income increases multiple times, it is known as forward looking multiplier. Whereas, when with decrease in investment, income decreases multiple times, it is known as backward looking multiplier.
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There is a positive relationship between MPC and multiplier: This is also true. A higher marginal propensity to consume (MPC) leads to a larger multiplier effect, as more of the additional income is spent rather than saved.
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There is a negative relationship between MPS and multiplier: This is true as well. The marginal propensity to save (MPS) and the multiplier have an inverse relationship; as MPS increases, the multiplier decreases, since less of the additional income is spent.
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